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The current price of a stock is $41. During each 6-month period, the price will either...
The current price of a stock is $41. During each 6-month period, the price will either rise by 29% or fall by 22.5%. The annual interest rate is 8.16%. Calculate the value of a one-year American PUT option on the stock with an exercise price of $40.
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jeff jeffy answered 1 year agoRelated Solutions
The current price of the stock of Bufflehead company is C$100. During each six-month period it...
The current price of the stock of Bufflehead company is C$100.
During each six-month period it will either rise by 10% or fall by
10%. The interest rate is 6% per annum compounded
semi-annually.
a. Calculate the value of a one-year European put option on
Bufflehead's stock with an exercise price of C$115.
b. Recalculate the value of the Bufflehead put option, assuming
that it is an American option.
Problem 3: Derivatives Valuation (6 marks) A stock price is currently $36. During each three-month period...
Problem 3: Derivatives Valuation
A stock price is currently $36. During each three-month period
for the next six months it is expected to increase by 9% or
decrease by 8%. The risk-free interest rate is 5%. Use a two-step
tree to calculate the value of a derivative that pays off
(max[(40-ST),0])2 where St is the stock price in six
months.
What are the payoffs at the final nodes of the tree? [1
mark]
Use no-arbitrage arguments (you need to show...
Problem 3: Derivatives Valuation (6 marks) A stock price is currently $36. During each three-month period...
Problem 3: Derivatives Valuation A stock price is
currently $36. During each three-month period for the next six
months it is expected to increase by 9% or decrease by 8%. The
risk-free interest rate is 5%. Use a two-step tree to calculate the
value of a derivative that pays off (max[(40-ST),0])2 where ST is
the stock price in six months.
a. What are the payoffs at the final nodes of the tree?
b. Use no-arbitrage arguments (you need to show...
Problem 3: Derivatives Valuation (6 marks) A stock price is currently $36. During each three-month period...
Problem 3: Derivatives Valuation A stock price is
currently $36. During each three-month period for the next six
months it is expected to increase by 9% or decrease by 8%. The
risk-free interest rate is 5%. Use a two-step tree to calculate the
value of a derivative that pays off (max[(40-ST),0])2 where ST is
the stock price in six months.
a. What are the payoffs at the final nodes of the tree? - not
PV's for prices on tree
b....
A stock price is currently $30. During each two-month period for the next four months it...
A stock price is currently $30. During each two-month
period for the next four months it will increase by 8% or decrease
by 10%. The
risk-free interest rate is 4%. Use a two-step tree to calculate the
value of a derivative
that pays off [max(30-ST, 0)]2, where ST is the stock price in four
months. If the
derivative is American-style, should it be exercised early?
Consider a two-period binomial setting. The current stock price is $48.6 in each period, the stock...
Consider a two-period binomial setting.
The current stock price is $48.6 in each period, the stock may
increase by 1.2 or decrease by 0.84. One plus the risk-free, rf is
1.02. The risk-free rate applies to each period within the
two-period setting.
What is the initial value of a call option with a strike price
of $49?
Consider a 6-month forward contract on a stock whose current price is $40. The stock will...
Consider a 6-month forward contract on a stock whose current
price is $40. The stock will not pay any dividend, and the
risk-free interest rate is 4% per annum. The forward price of the
stock is $43. Is there an arbitrage? If so, show the arbitrage
strategy and resulting cash flows.
The current price of a stock is $50. In 1 year, the price will be either...
The current price of a stock is $50. In 1 year, the price will
be either $65 or $35. The annual risk-free rate is 10%. Find the
price of a call option on the stock that has an exercise price of
$55 and that expires in 1 year. (Hint: Use daily compounding.)
The current price of a stock is $50. In 1 year, the price will be either...
The current price of a stock is $50. In 1 year, the price will
be either $65 or $35. The annual risk-free rate is 10%. Find the
price of a call option on the stock that has an exercise price of
$55 and that expires in 1 year. (Hint: Use daily compounding.)
The current price of a stock is $48. In 1 year, the price will be either...
The current price of a stock is $48. In 1 year, the price will
be either $55 or $31. The annual risk-free rate is 6.6%. Find the
price of a call option on the stock that has a strike price of $50
and that expires in 1 year. ( Use daily compounding.)
Inputs
P0 = ? u = ?
X = ? d =...
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