Question
In: Finance
You are interested to value a put option with an exercise price of $100 and one...
You are interested to value a put option with an exercise price of $100 and one year to expiration. The underlying stock pays no dividends, its current price is $100, and you believe it either increases to $120 or decreases to $80. The risk-free rate of interest is 10%. Calculate the put option's value using the binomial pricing model, presenting your calculations and explanations as follows:
a. Draw tree-diagrams to show the possible paths of the share price and put payoffs over one year period. (Note: Show the numbers that are known and use letter(s) for what is unknown in your diagrams.)
b. Compute the hedge ratio.
c. Find the put option price. Explain your calculations clearly.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You are interested to value a put option with an exercise price of $100 and one...
You are interested to value a put option with an exercise price
of $100 and one year to expiration. The underlying stock pays no
dividends, its current price is $100, and you believe it either
increases to $120 or decreases to $80. The risk-free rate of
interest is 10%. Calculate the put option's value using the
binomial pricing model, presenting your calculations and
explanations as follows:
a. Draw tree-diagrams to show the possible paths of the share
price and put...
You are attempting to value a put option with an exercise price of $100 and one...
You are attempting to value a put option with an exercise price
of $100 and one year to expiration. The underlying stock pays no
dividends, its current price is $100, and you believe it has a 50%
chance of increasing to $116 and a 50% chance of decreasing to $84.
The risk-free rate of interest is 8%. Calculate the value of a put
option with exercise price $100. (Do not round intermediate
calculations. Round your answer to 2 decimal
places.)...
You are attempting to value a put option with an exercise price of $109 and one...
You are attempting to value a put option with an exercise price
of $109 and one year to expiration. The underlying stock pays no
dividends, its current price is $109, and you believe it has a 50%
chance of increasing to $127 and a 50% chance of decreasing to $91.
The risk-free rate of interest is 10%. Calculate the value of a put
option with exercise price $109.
What is the value of the put option?
You are attempting to value a put option with an exercise price of $108 and one...
You are attempting to value a put option with an exercise price
of $108 and one year to expiration. The underlying stock pays no
dividends, its current price is $108, and you believe it has a 50%
chance of increasing to $133 and a 50% chance of decreasing to $83.
The risk-free rate of interest is 9%. Calculate the value of a put
option with exercise price $108.
You are attempting to value a put option with an exercise price of $106 and one...
You are attempting to value a put option with an exercise price
of $106 and one year to expiration. The underlying stock pays no
dividends, its current price is $106, and you believe it has a 50%
chance of increasing to $125 and a 50% chance of decreasing to $87.
The risk-free rate of interest is 8%. Calculate the value of a put
option with exercise price $106. (Do not round intermediate
calculations. Round your answer to 2 decimal
places.)
You are attempting to value a call option with an exercise price of $75 and one...
You are attempting to value a call option with an exercise price
of $75 and one year to expiration. The underlying stock pays no
dividends, its current price is $75, and you believe it has a 50%
chance of increasing to $95 and a 50% chance of decreasing to $55.
The risk-free rate of interest is 10%. Based upon your assumptions,
calculate your estimate of the the call option's value using the
two-state stock price model. (Do not round intermediate...
You are attempting to value a call option with an exercise price of $108 and one...
You are attempting to value a call option with an exercise price
of $108 and one year to expiration. The underlying stock pays no
dividends, its current price is $108, and you believe it has a 50%
chance of increasing to $145 and a 50% chance of decreasing to $71.
The risk-free rate of interest is 9%. Calculate the call option's
value using the two-state stock price model.
You are attempting to value a call option with an exercise price of $109 and one...
You are attempting to value a call option with an exercise price
of $109 and one year to expiration. The underlying stock pays no
dividends, its current price is $109, and you believe it has a 50%
chance of increasing to $130 and a 50% chance of decreasing to $88.
The risk-free rate of interest is 12%. Calculate the call option’s
value using the two-state stock price model.
You are attempting to value a call option with an exercise price of $150 and one...
You are attempting to value a call option with an exercise price
of $150 and one year to expiration. The underlying stock pays no
dividends. Its current price is $100. The stock price either
increases by a factor of 1.5, or decreases by a factor of 0.5,
every six months. The risk-free rate of interest is 2% per year (or
1% per six-month period). What is the value of this call option
using the two-period binomial option pricing model? (Do...
You are attempting to value a call option with an exercise price of $107 and one...
You are attempting to value a call option with an exercise price
of $107 and one year to expiration. The underlying stock pays no
dividends, its current price is $107, and you believe it has a 50%
chance of increasing to $125 and a 50% chance of decreasing to $89.
The risk-free rate of interest is 8%. Calculate the call option’s
value using the two-state stock price model.
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