A stock sells for $125. A call option on the stock has an exercise price of $110 and expires in 3 months. If the interest rate is 0.15 and the standard deviation of the stock’s return is 0.30. What would be the price of a put option on the same stock with an exercise price of $140 and the same time (3 months) until expiration? Show all workings. (See Appendix for the Cumulative Normal Distribution Table)
A stock sells for $125. A call option on the stock has an exercise price of $110 and expires in 3 months. If the interest rate is 0.15 and the standard deviation of the stock’s return is 0.30. What would be the price of a put option on the same stock with an exercise price of $140 and the same time (3 months) until expiration? Show all workings. (See Appendix for the Cumulative Normal Distribution Table)
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
Related questions
Question
-
A stock sells for $125. A call option on the stock has an exercise price of $110 and expires in 3 months. If the interest rate is 0.15 and the standard deviation of the stock’s return is 0.30.
What would be the price of a put option on the same stock with an exercise price of $140 and the same time (3 months) until expiration? Show all workings. (See Appendix for the Cumulative
Normal Distribution Table) -
b) Let the spot rate be Yen 100 / $ and the 3-month forward rate be Yen 99/$. Compute the interest rate differential between the U.S. and Japan at which interest rate parity will hold true.
Transcribed Image Text:N(d)
N(d)
N(d)
N(d)
N(d)
N(d)
-3.00
.0013
-1.58
.0571
-.76
2236
.06
.5239
.86
.8051
.9515
1.66
-2.95
.0016
-1.56
.0594
-.74
2297
.08
.5319
.88
.8106
1.68
.9535
-2.90
.0019
-1.54
.0618
-.72
2358
.10
.5398
.90
.8159
1.70
.9554
-2.85
.0022
-1.52
.0643
-.70
2420
.12
.5478
.92
.8212
1.72
.9573
-2.80
.0026
-1.50
.0668
-68
.2483
.14
.5557
.94
.8264
1.74
.9591
-2.75
0030
-1.48
.0694
-.66
.2546
.16
.5636
.96
.8315
1.76
.9608
-2.70
0035
-1.46
.0721
-.64
.2611
18
.5714
.98
.8365
1.78
.9625
-2.65
.0040
-1.44
.0749
-.62
.2676
20
.5793
1.00
.8413
1.80
.9641
2.60
0047
-1.42
.0778
-.60
2743
.22
.5871
1.02
.8461
1.82
.9656
-2.55
0054
-1.40
.0808
-58
.2810
24
.5948
1.04
.8508
1.84
.9671
2.50-
.0062
-1.38
.0838
-.56
.2877
.26
.6026
1.06
.8554
1.86
.9686
-2.45
0071
-1.36
.0869
-.54
.2946
.28
.6103
1.08
.8599
1.88
-2.40
0082
-1.34
.9699
.0901
-52
.3015
.30
6179
-2.35
0094
1.10
8643
1.90
.9713
-1.32
.0934
-.50
3085
32
6255
-2.30
.0107
1.12
.8686
1.92
.9726
-1.30
.0968
-48
.3156
34
6331
2.25
.0122
1.14
.8729
1.94
.9738
-1.28
.1003
-46
3228
36
6406
-2.20
.0139
1.16
.8770
1.96
.9750
-1.26
.1038
-44
.3300
38
6480
-2.15
.0158
1.18
8810
1.98
.9761
-1.24
1075
-42
3372
-2.10
.40
6554
1.20
8849
2.00
.0179
-1.22
1112
-.40
3446
.9772
-2.05
42
6628
1.22
.8888
2.05
.0202
-1.20
.1151
38
,9798
3520
44
6700
1.24
8925
-2.00
.0228
-1.18
1190
+36
3594
2.10
9821
-1.98
46
6772
1.26
8962
2.15
.0239
-1.16
1230
.9842
-.34
3669
48
6844
-1.96
.0250
-1.14
1.28
.8997
2.20
.9861
1271
32
3745
50
-1.94
.0262
6915
1.30
.9032
2.25
.9878
1.12
1314
30
3821
-1.92
.0274
.52
.6985
1.32
.9066
2.30
-1.10
.1357
28
3897
.9893
-1.90
.0287
.54
7054
1.34
.9099
2.35
1.08
1401
26
3974
.9906
-1.88
.0301
.56
7123
1.36
.9131
-1.06
1446
.24
2.40
.9918
1.86
.4052
.58
.7190
1.38
.0314
-1.04
1492
.9162
2.45
.9929
-.22
.4129
.60
.7257
-1.84
.0329
-1.02
1.40
.9192
2.50
.9938
1539
-20
.4207
-1.82
.0344
.62
.7324
1.42
.9222
-1.00
.1587
18
.4286
2.55
.9946
-1.80
.0359
.64
.7389
1.44
.9251
-.98
.1635
-.16
.4364
2.60
.9953
-1.78
.0375
.66
.7454
1.46
.9279
.96
.1685
-.14
.4443
2.65
.9960
-1.76
.0392
.68
.7518
1.48
.9306
-.94
.1736
-12
2.70
.9965
-1.74
.0409
.4522
.70
.7580
1.50
-.92
.1788
-.10
.9332
2.75
.9970
-1.72
.0427
.4602
.72
.7642
-.90
.1841
-.08
1.52
.9357
2.80
.4681
.74
.9974
-1.70
.0446
-88
.7704
1.54
.9382
.1894
-.06
.4761
.76
2.85
.9978
-1.68
.0465
-.86
.7764
1.56
.9406
.1949
-.04
.4840
2.90
.9981
-1.66
.0485
-.84
.78
.7823
1.58
.9429
2005
-.02
.4920
2.95
.9984
-1.64
.0505
-.82
2061
.80
.7881
1.60
.9452
-1.62
.00
.5000
3.00
.9987
.0526
-.80
.82
.7939
1.62
.9474
-1.60
2119
.02
.5080
3.05
.9989
.0548
-.78
2177
.84
.7995
1.64
.9495
.04
This table shows the probability [N(d)) of observing a value less than or equal to d. For example, as ilustrated
.5160
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