The current price of a stock is $20. In 1 year, the price will be either $28 or $15. The annual risk-free rate is 7%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Find the price of a call option on the stock that has a strike price is of $25 and that expires in 1 year. (Hint: Use daily compounding.) Assume 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent.
The current price of a stock is $20. In 1 year, the price will be either $28 or $15. The annual risk-free rate is 7%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Find the price of a call option on the stock that has a strike price is of $25 and that expires in 1 year. (Hint: Use daily compounding.) Assume 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The current price of a stock is $20. In 1 year, the price will be either $28 or $15. The annual risk-free rate is 7%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.
Find the price of a call option on the stock that has a strike price is of $25 and that expires in 1 year. (Hint: Use daily compounding.) Assume 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent.
Transcribed Image Text:File
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Insert
Draw
Page Layout
Formulas
Data
Calibri
V 11
В
v A
S13
fx
A.
B
D
E
F
1 Binomial Model
2
3 Current price
$20.00
High price, Year 1
$28.00
5 Low price, Year 1
6 Risk-free rate, TRE
7 Strike price
8 Time until expiration (in years)
$15.00
7.00%
$25.00
1.00
9
Number of days per year
365
10
11
Outcome
Stock Price
Strike Price
Option Payoff
12
Price up
$28.00
$25.00
$3.00
13
14
Price down
$15.00
$25.00
S0.00
15
Range
$13.00
$3.00
16
17
Formulas
Number of shares of stock to purchase to
18 create hedge portfolio, N::
#N/A
19
20 Hedge portfolio's payoff if stock price up
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22 Hedge portfolio's payoff if stock price down
23
24 Present value of hedge portfolio
25
26 Value of call option, Vc
27
28
29
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A Sheet1
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