Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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![### Option Pricing Problem
In this exercise, you are given the following conditions for options pricing:
- A **put option** and a **call option** both have an exercise price of **$55** and three months until expiration.
- The put option sells for **$1.15**, while the call option sells for **$5.30**.
- The **risk-free rate** is **4.2% per year**, compounded continuously.
**Task:**
Calculate the current stock price.
**Instructions:**
- Do not round intermediate calculations.
- Round your final answer to **two decimal places** (e.g., 32.16).
**Input Field:**
- **Current stock price**: [Input Box]](https://content.bartleby.com/qna-images/question/f00761e5-6ea2-4b64-9c87-d0591240e351/6ec1b649-8d6c-41da-8b2e-6c290133e853/hcjiv6k_processed.png)
Transcribed Image Text:### Option Pricing Problem
In this exercise, you are given the following conditions for options pricing:
- A **put option** and a **call option** both have an exercise price of **$55** and three months until expiration.
- The put option sells for **$1.15**, while the call option sells for **$5.30**.
- The **risk-free rate** is **4.2% per year**, compounded continuously.
**Task:**
Calculate the current stock price.
**Instructions:**
- Do not round intermediate calculations.
- Round your final answer to **two decimal places** (e.g., 32.16).
**Input Field:**
- **Current stock price**: [Input Box]
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- i need the answer quicklyarrow_forwardConsider a call option on one share of BP with a strike price of $70 and exercise time 1 quarter (3 months). Suppose the current stock price for BP is S(0) = $65 per share. Suppose further that A(0) = $100, A(1) = $102 and two possible prices for S(1) are S $74 with probability 0.5, S(1) = $66 with probability 0.5. Evaluate the expected returns E(Ks) and E(Kc) for the stock and the option.arrow_forwardThe stock price of Copious Corp. is currently $30. The stock price 1 year(s) from now will be either $34 or $27. The annual risk-free rate is 1.4%. Using the binomial model, what is the value of a call option with an exercise price of $30 and an expiration date 1 year(s) from now?arrow_forward
- Consider 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_forwardA stock is currently selling for $39. In one period, the stock will move up by a factor of 1.29 or down by a factor of .53. A call option with a strike price of $50 is available. If the risk-free rate of interest is 2.5 percent for this period, what is the value of the call option?arrow_forward
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