Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Am. 103.arrow_forwardThe current price of a non-dividend paying stock is $50. Use a two-step tree to value a European put option on the stock with a strike price of $50 that expires in 12 months. Each step is 6 months, the risk free rate is 5% per annum, and the volatility is 50%. What is the value of the option according to the two-step binomial model. Please enter your answer rounded to two decimal places (and no dollar sign).arrow_forwardA stock price with an expected return of 26% and a volatility of 30% . The current price is $48 . What is the probability that a European call option on the stock with an exercise price of $50 and a maturity date in six months will be exercisedarrow_forward
- Suppose a non-dividend paying stock is trading at $175 per share and has a volatility of 20%. What is the fair price of a 3-month European call option with a strike price of $190 per share using 1 binomial period? Assume the risk-free rate is 1%. Round to the nearest $0.01.arrow_forwardA stock is selling today for $110. The stock has an annual volatility of 64 percent and theannual risk-free rate is 7 percent.a. Calculate the fair price for a 1-year European call option with an exercise price of $95.b. Calculate how much the current stock price would need to change for the purchaser ofthe call option to break even in one year.c. Calculate the fair price for a 1 year European put option with an exercise price of $95arrow_forwardThe current stock price is $20, the risk - free interest rate is 5% per annum (consecutive compounding), and the volatility is 15% per annum. Calculate the price of a European call option with a maturity of 3 months and an exercise price of $21. However, this stock is assumed to be non - dividend.arrow_forward
- Assume the spot Swiss franc is $0.7040 and the six-month forward rate is $0.7030. What is the Value of a six-month call and a put option with a strike price of $0.6840 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the European option-pricing models to value the call and put option. This problem can be solved using the FXOPM.xls spreadsheet. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Option Call Put Value cents centsarrow_forwardThe price of a European call option on a stock with a strike price of $50.9 is $5.6. The stock price is $40.1, the continuously compounded risk-free rate (all maturities) is 5.2% and the time to maturity is one year. A dividend of $0.6 is expected in six months. What is the price of a one-year European put option on the stock with a strike price equal to the call's strike price? Please state the formula and steps, thanksarrow_forwardSuppose that a stock price is currently 68 dollars, and it is known that at the end of each of the next two six-month periods, the price will be either 19 percent higher or 19 percent lower than at the beginning of the period. Find the value of a European put option on the stock that expires a year from now, and has a strike price of 67 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 7 percent. Answer = dollars.arrow_forward
- A European call option and put option on a stock both have a strike price of $20 and an expiration date in nine months. Both sell for $3. The risk-free interest rate is 15% per annum, the current stock price is $19.75, and a $1 dividend is expected in one month. Identify the arbitrage opportunity open to a trader.arrow_forwardA put option with an exercise price of $56 will expire in 180 days. The underlying asset price of today is $160 . The underlying asset price at expiration is $126. The risk-free rate is 2%, What is the lower bounds for an European put?arrow_forwardToday's price of Microsoft (MSFT) is $150 per share. A retail investor purchases an at-the-money European put option on MSFT with a maturity of one year. She pays a premium of $14.11. The c.c. risk-free interest rate is one percent. What is the potentiality value of the option? Round your answer to three decimal places.arrow_forward
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