The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $90 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $90 is $7.00. Required: a. If the semiannual risk-free interest rate is 4%, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $90 if it is at the money? (The stock pays no dividends.) b. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement? What is the most money you can make on this position? How far can the stock price move in either direction before you lose money? c. How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now? Complete this question by entering your answers in the tabs below. Required A Required B Required C How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now? Note: Enter all values as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Position Immediate CF Call (long) 8.75 Put (short) 7.00 Lending position 88.25 Total 90.00 Show less A
The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $90 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $90 is $7.00. Required: a. If the semiannual risk-free interest rate is 4%, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $90 if it is at the money? (The stock pays no dividends.) b. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement? What is the most money you can make on this position? How far can the stock price move in either direction before you lose money? c. How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now? Complete this question by entering your answers in the tabs below. Required A Required B Required C How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now? Note: Enter all values as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Position Immediate CF Call (long) 8.75 Put (short) 7.00 Lending position 88.25 Total 90.00 Show less A
Chapter20: Financing With Derivatives
Section20.A: The Black-scholes Option Pricing Model
Problem 1P
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Transcribed Image Text:The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $90 per share for months, and you
believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $90 is
$7.00.
Required:
a. If the semiannual risk-free interest rate is 4%, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise
price of $90 if it is at the money? (The stock pays no dividends.)
b. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future
movement? What is the most money you can make on this position? How far can the stock price move in either direction before
you lose money?
c. How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the
stock at expiration? What is the net cost of establishing that position now?
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C
How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the
stock at expiration? What is the net cost of establishing that position now?
Note: Enter all values as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.
Leave no cells blank - be certain to enter "0" wherever required.
Position
Immediate CF
Call (long)
8.75
Put (short)
7.00
Lending position
88.25
Total
90.00
< Required B
Required C >
Show less A
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