Question
In: Finance
87. A stock with a stock and exercise price of $20 can either increase to $26...
87. A stock with a stock and exercise price of $20 can either increase to $26 or decrease to $18 over the course of one year. In a one-period binomial option model, given an interest rate of 5% and equal probabilities, what is the likely option price? (Use annual compounding.)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Rockford stock is trading at $20/share and can either increase to $26 or decrease to $18...
Rockford stock is trading at $20/share and can either increase
to $26 or decrease to $18 over the course of one year. In a
one-period binomial option model, given an interest rate of 5%,
what is the price of an at-the money call on Rockford stock
expiring in one year? (Use annual compounding.) Multiple Choice
$2.14
$2.88
$3.00
$2.50
Suppose the stock now sells at $100, and the price will either increase by 20% or...
Suppose the stock now sells at $100, and the price will either
increase by 20% or decrease by 20% by the end of the year. The
risk-free rate from now to year-end is 5%. Which of the following
options that expires at year end must have the highest price?
a) A call option with strike price of $120.
b) A put option with strike price of $90.
c) A put option with strike price of $80.
d) Not enough information
A stock is currently priced at $45. It will either increase by 20% or decrease by...
A stock is currently priced at $45. It will either increase by
20% or decrease by 10% over the next two months. If you sold a put
option with exercise price of $45 and two months to maturity, how
many shares of stock should you buy or sell to hedge the
option?
Doesn't give risk free rate.
Assume an initial underlying stock price of $20, an exercise price of $20, a time to...
Assume an initial underlying stock price of $20, an exercise
price of $20, a time to expiration of 3 months, a risk free rate of
12% and a underlying stock return variance of 16%. If the risk free
rate decreased to 6% and assuming other variables are held
constant, the call option value would
A) increase
B) remain the same
C) decrease
D) indeterminate from the information given
A stock is currently trading at $80. After one period, the price will either increase by...
A stock is currently trading at $80. After one period, the
price will either increase by 20% or decrease by 20% and the stock
does not pay any dividend. The risk-free rate per period is 2%.
Consider a put option on the stock with strike price of $70. Set up
a replicating portfolio and price the option.
A speculator buys a call option for $1.5, with an exercise price of $20. The stock...
A speculator buys a call option for $1.5, with an exercise
price of $20. The stock is currently priced at $19, and rises to
$26 on the expiration date. The speculator will exercise the option
on the expiration date (if it is feasible to do so). What is the
speculator's profit per unit?
YBM’s stock price S is $102 today. — After six months, the stock price can either...
YBM’s stock price S is $102 today. — After six months, the stock
price can either go up to $115.63212672, or go down to
$93.52995844. — Options mature after T = 6 months and have an
exercise price of K = $105. — The continuously compounded risk-free
interest rate r is 5 percent per year. Given the above data,
suppose that a trader quotes a put price of $5. Then the arbitrage
profit that you can make today by trading...
YBM’s stock price S is $102 today. — After six months, the stock price can either...
YBM’s stock price S is $102 today. — After six months, the stock
price can either go up to $115.63212672, or go down to
$93.52995844. — Options mature after T = 6 months and have an
exercise price of K = $105. — The continuously compounded risk-free
interest rate r is 5 percent per year. Given the above data, the
hedge ratio and the put option’s value are given by:
Group of answer choices
0.5190 for the hedge ratio and...
YBM’s stock price S is $102 today. — After six months, the stock price can either...
YBM’s stock price S is $102 today. — After six months, the stock
price can either go up to $115.63212672, or go down to
$93.52995844. — Options mature after T = 6 months and have an
exercise price of K = $105. — The continuously compounded risk-free
interest rate r is 5 percent per year. Given the above data,
suppose that a trader quotes a call price of $6. Then the arbitrage
profit that you can make today by trading...
A stock has a beginning market value of $75. It can either increase in value 15%...
A stock has a beginning market value of $75. It can either
increase in value 15% each year or decrease in value by 15%. A
3-year European call option written on the stock has an exercise
price of $75. The risk-free rate of return is 5% per year. What is
the current equilibrium price of the call option if you maintain a
riskless portfolio by readjusting your relative positions in stocks
and puts at the end of each year?
X=75...
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