Vijay Problem 21-38You are attempting to value a put option with an exercise price of $102 and one year to expiration. The underlying stock pays nodividends, its current price is $102, and you believe it has a 50% chance of increasing to $121 and a 50% chance of decreasing to $83.The risk-free rate of interest is 5%. Calculate the value of a put option with exercise price $102. (Do not round intermediatecalculations. Round your answer to 2 decimal places.)Value of a put option

The value of the put option can be calculated using the following formula:Put option value = e^(-rt)…

Answered: Problem 21-38 You are attempting to…

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter18: Derivatives And Risk Management

Section18.A: Valuation Of Put Options

Problem 1P

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Question 5: A call option on a stock that expires in a year has a strike price of $99. The current stock price is $100 and the one-year risk free interest rate is 10%. The price of this call is $6. a) Is arbitrage possible? What is the arbitrage position? b) do you het this minimum? Find the minimum arbitrage profit for this strategy. When
Question 5 Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. a. What is the price of the option if it is a European call? b. What is the price of the option if it is a European put? c. Verify that put-call parity holds. ●
Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
Question 5: Suppose that a March call option to buy a share for $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.Plz explain it
Question 1 • Springtime Insurance Brokers Ltd. (SIBL) stock is currently selling for $42. A put option on the stock with a value of $3 has an exercise price of $40 and 6 months until expiration. To prevent arbitrage opportunities, what should be the value of a call option with the same strike price and expiration date? Assume that the options are European and that the effective annual risk-free rate is 6%.
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Aa.8 A put with 1-year to maturity is written on a stock. The current underlying stock price is $20. The option’s exercise price is $18, the interest rate is 3.74%, and the stock’s volatility is 32.7%. The price of a call written on the same stock with the same exercise price and time to maturity is $4.3. Use BSM pricing to determine if put-call parity holds.
Question 4 - A stock price is currently worth $20. It is known that at the end of a 6 month period it is expected to go up by 8% or down by 5%. The risk-free interest rate is 4% per annum with continuous compounding. Use a two-step tree to calculate the value of a 1-year American exotic option whose payoff is payoff max (S+ ST - S²; 0). State in which node the option is early exercised.
Assume that you have an American call option expiring next year with exercise price of $40 on a stock which currently trades at $35. You expect the stock to increase by a factor of 1.18 and decrease by a factor of 0.75. If the interest rate is 6%, the option value today is closest to: Select one: a. $6.29 b. $8.73 c. $5.93 d. $8.23
14. Suppose a call option sells for $2.50, a put option sells for $2.00, both options have a $25.00 striking price, the current stock price is $25.50, and the options both expire in forty-six days. Using the put-call parity model, calculate the rate of interest implied in these numbers. 7
Question 4 Which of the following are always positively related to the price of a European call option on a stock (circle three) NOTE: "All or Nothing" Scoring Question options: The stock price The strike price The time to expiration The volatility The risk-free rate The magnitude of dividends anticipated during the life of the option Question 8 Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum potential gain when a bear spread is created from the calls? Question options: $2.00 $2.50 $3.00 None of the above Question 11 Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum potential loss when a bear spread is created from the calls? Question options: $2.00 $2.50 $3.00 None of the above
aa.3 43.3: Consider a chooser option on a stock. The stock currently trades for $50 and pays dividend at the continuously compounded yield of 8%. The choice date is two years from now. The underlying European options expire in four years from now and have a strike price of $45. The continuously compounded risk-free rate is 5% and the volatility of the prepaid forward price of the stock is 30%. Find the delta of the chooser option. [answer:0.1303]

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