Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- The price of a stock, which pays no dividends, is $30 and the strike price of a three-year European call option on the stock is $27. The risk-free rate is 8% (continuously compounded). Which of the following is a precise lower bound for the option such that there are arbitrage opportunities if the price is below the lower bound and no arbitrage opportunities if it is above the lower bound? Round your answer to 2 decimal places. Question 12Answer a. $8.76 b. $8.42 c. $8.57 d. $8.70arrow_forwardi need the answer quicklyarrow_forwardSuppose the 6-month Mini S&P 500 futures price is 1,345.99, while the cash price is 1,335.81. What is the implied difference between the risk-free interest rate and the dividend yield on the S&P 500? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Implied difference %arrow_forward
- The price of a stock, which pays no dividends, is $30 and the strike price of a two-year European call option on the stock is $25. The risk-free rate is 8% (continuously compounded). Which of the following is a precise lower bound for the option such that there are arbitrage opportunities if the price is below the lower bound and no arbitrage opportunities if it is above the lower bound? Round your answer to 2 decimal places. a. $8.42 b. $8.76 c. $8.57 d. $8.70arrow_forwardConsider a two - period binomial model, where each period is 6 months. Assume the stock price is $75.00, \sigma 0.35, and r = 0.05. An American call option with a strike price of $80 would be exercised early at what dividend yield? () (A) 5.0% (B) 7.0 % (C) 9.0% (D) Never exercise earlyarrow_forwardA stock price is currently $52. Its volatility is 35% p.a. . The risk-free interest rate is 8% p.a. with continuous compounding. What is the value of a 2-year European call option with a strike price of $55, using a 2-step binomial tree? Without doing any calculations, explain what would happen to the value of the option if the stock volatility decreasesarrow_forward
- D6) You use the Black Scholes model to price a Call option on a stock with discrete dividends. The dividends will be given in months 1, 5, and 9, each 3 USD. The current value of the stock is 105 USD, the strike price is 90 USD, the continuously compounded annual risk-free rate is 0.05, the volatility is 0.08, the time to maturity is 12 months. Calculate the price of the option.arrow_forwardSuppose the 6-month Mini S&P 500 futures price is 1,168.44, while the cash price is 1,150.55. What is the implied dividend yield on the S&P 500 if the risk-free interest rate is 4.3 percent? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Implied dividend yield %arrow_forward
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