Suppose that the current price of Roblox Corporation common stock is (RBLX) is $100. If the price of RBLX will be either $150 or $50 one year from now, what is the price of a call option with a strike price of $120 expiring one year from now? Assume that the current risk free rate is 1%. What is the risk neutral probability of the stock being $150 one year from now?

Suppose that the current price of Roblox Corporation common stock is (RBLX) is $100. If the price of RBLX will be either $150 or $50 one year from now, what is the price of a call option with a strike price of $120 expiring one year from now? Assume that the current risk free rate is 1%. What is the risk neutral probability of the stock being $150 one year from now?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 17MC: Now assume that the stock is currently selling at $30.29. What is its expected rate of return?

See similar textbooks

Similar questions

Now assume that the stock is currently selling at $30.29. What is its expected rate of return?
Consider a stock with a current price of $15 that will be worth either $10 or $25 1 year from now. Assume rf = 0% (annual compounding). You have invented a new derivative security called an "inverse", whose payoff in 1 year is 100 divided by the stock price, i.e., payoff =100/S1 . If the beta of the stock is 1.2, what is the beta of this new derivative?
Consider a stock with a current price of P = $27.Suppose that over the next 6 months the stockprice will either go up by a factor of 1.41 or downby a factor of 0.71. Consider a call option on thestock with a strike price of $25 that expires in6 months. The risk-free rate is 6%.(1) Using the binomial model, what are the endingvalues of the stock price? What are the payoffsof the call option?
Assume a stock price is g120, and in the next year, it will either rise by 10 percent or fall by 20 percent. The risk-free interest rate is 6 percent. A call option on this stock has an exercise price of g130. What is the price of a call option that expires in one year? What is the chance that the stock price will rise?
Suppose that a stock price is currently 51 dollars, and it is known that one month from now, the price will be either 6 percent higher or 6 percent lower. Find the value of an American call option on the stock that expires one month from now, and has a strike price of 49 dollars. Assume that no arbitrage opportunities exist, and a risk free interest rate of 10 percent
Suppose a stock is currently (time t = 0) worth 100. Further, suppose the one year annually compounded interest rate is 2%, and the two year annually compounded rate is 3%. Find the following:a) The forward price for a forward contract on the stock with maturity year T1 = 1. b) The forward price for a forward contract on the stock with maturity year T2 = 2.c) The forward price for a forward contract with maturity T1 = 1 on a ZCB with maturity T2 = 2.d) The forward price for a forward contract with maturity T1 = 1 on a forward contract on the stock with maturity T2 = 2 and delivery price K = 101.
Consider a put option on a stock that currently sells for £100, but may rise to £120 or fall to £80 after 1 year. The risk free rate of return is 10%, and the exercise price is £90. (c) What is the price of a call option on the same stock with the same exercise price and the same expiration date? Explain the reasoning behind your your calculations.
Consider shorting a call option c on a stock S where S = 24 is the value of the stock, K = 30 is the strike price, T = ½ is the expiration date, r = 0.04 is the continuously compounded interest rate per year, and  = 0.3 is the volatility of the price of the stock. Determine the delta ratio Δ .
In this problem we assume the stock price S(t) follows Geometric Brownian Motion described by the following stochastic differential equation: dS = µSdt + o Sdw, where dw is the standard Wiener process and u = 0.13 and o = current stock price is $100 and the stock pays no dividends. 0.20 are constants. The Consider an at-the-money European call option on this stock with 1 year to expiration. What is the most likely value of the option at expiration? Please round your numerical answer to 2 decimal places.
Imagine all investors are risk-neutral and we have the following binomial tree: 0 Stock: So= 80 1 100 72 2 120 90 86.4 64.8 Using the risk-neutral option valuation approach, calculate the price of a two-year put option on this stock with a strike price $92. Assume that the risk-free rate is 3% per year. Also assume the stock does not pay a dividend. Pick the closest number.
You model a stock price S(t) using a stochastic process, with t measured in years. Your model implies that the risk-neutral distribution for the stock price at t = 4 has probability density function fs(4)(x) = x-40 {} 50 if 40 < x < 50 else Assume that interest is compounded continuously at nominal rate r = : 2.0%. Calculate the price of the stock at time 0 to the nearest pence. Do not enter the pound sign.
Suppose the current stock price is $50 and you believe that, one year from now, the stock will sell for either $60 (up-state) or $30 (down-state). The yield on a 1-year risk free zero coupon bond is currently 4%. If you want to replicate a call option payoff with an exercise price of $40, how much should you borrow today? (SHOW YOUR WORK)