Today a stock is $100, and a call option on this stock with a year to expiration and a $120 strike price is trading with a $6.06 premium. The risk-free rate is 10%. What is the premium of a put option on the stock with the same strike and expiration? $1.28 $6.06 $7.22 $15.15

Today a stock is $100, and a call option on this stock with a year to expiration and a $120 strike price is trading with a $6.06 premium. The risk-free rate is 10%. What is the premium of a put option on the stock with the same strike and expiration? $1.28 $6.06 $7.22 $15.15

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 4P: Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call...

See similar textbooks

Related questions

Q: 3-year 90-day 3-year Treasury notes Commercial paper Corporate bonds (AA) 9.10 percent 9.15 percent…

A: Default risk premium:The "default risk premium" refers to the additional return that investors…

Q: Since BSOPM was originally developed for a non-dividend paying stock, it is useless for valuing…

A: A popular mathematical method in finance for pricing European-style options is the Black-Scholes…

Q: what would be the price of a bond with a call provision of one years' interest if the bond can be…

A: Bond life30Number of years since the issue is made10Number of years to maturity20Market interest…

Q: 4.7 Convert the given interest rates in the left-hand column into the nominal rates listed in the…

A: The nominal interest rate is the rate that is not adjusted according to inflation or the number of…

Q: 70% and its WACC is 13.10%. What percentage of the company's capital structure consists of debt? Do…

A: The weighted average cost of capital measures the typical cost a business pays to finance its…

Q: A private gym is looking at a new set of sports equipment with an installed cost of $450,000. This…

A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Q: Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six months…

A: The value of one currency stated in terms of another currency is known as an exchange rate. It shows…

Q: Using the following variables, calculate an organization's cost of debt on a $500,000 bond. • R₁: 1%…

A: The cost of debt refers to the expense that the company incurs to employ the debt capital to fund…

Q: Assume that you have $10,000,000 in your bank account. You wish to withdraw $400,000 per year, at…

A: The concept of TVM refers to the interest-earning capacity of money because of which the money…

Q: Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 25 years with an annual…

A: Price / Present Value can be calculated using PV function in excelPV (rate, nper, pmt, [Fv],…

Q: Question 24 Calculate the bond equivalent yield and effective annual return on fed funds that are 5…

A: Effective annual return:The term "effective annual return" refers to the actual rate of return…

Q: The value of a firm Multiple Choice equals the sum of the individual values of the firm's projects…

A: In this question, we are required to determine the correct statement regarding the value of a firm.

Q: Select all that are true with respect to option valuation: Group of answer choices The holder of a…

A: Option valuation refers to the process of determining the fair value of an options contract. This is…

Q: Noma plans to save $4,100 per year for the next 40 years. If she can earn an annual interest rate of…

A: Future value of the money is the amount of deposit done and amount of compounded interest…

Q: Dinklage International does not pay a common dividend. Dinklage’s growth rate for Cash Flow from…

A: The total worth of the firm can be found by adding the total worth of equity, preferred stocks, and…

Q: Problem 28-17 Break-Even Quantity The Branson Corporation is considering a change in its cash-only…

A: Price per unit $ 62.00Cost per unit $ 34.00Unit sales per month…

Q: A four-year bond has an 9 percent coupon rate and a face value of $1,000. If the current price of…

A: YTM is also known as Yield to maturity. It is a capital budgeting technique which helps in decision…

Q: Sectors, Inc., has an EBIT of $7,221,643 and interest expense of $611,800. Its depreciation for the…

A: In this question, we are required to determine the cash coverage ratio.

Q: onsider the following pool of mortgages: •100 mortgages each with initial balance of $182449,…

A: Weighted Average Maturity (WAM) is a financial metric used primarily in the context of fixed-income…

Q: Boca Incorporated and Davie Corporation are two mutually exclusive projects: A B time 0 1 2 3 4…

A: IRR is the required rate of return for the project to have zero Net Present value.IRR can be…

Q: Refer to the following data. Suppose a portfolio consisting of 40% in Security A and 60% in Security…

A: Here,Weight of A is 40%Weight of B is 60%SecurityBetaResidual…

Q: Use the Information below to answer the following question. Se ($/ €) F360 ($/ €) Exchange Rate…

A: An exchange rate is the rate at which one currency is exchanged for another currency.

Q: Price Variable cost Quantity Monthly return Credit terms Current credit policy Proposed credit…

A: Variable cost:Variable cost refers to the expenses that a business incurs when it produces or…

Q: Rotweiler Obedience School's December 31, 2018, balance sheet showed net fixed assets of $1,750,000,…

A: In this question, we are required to determine the net capital spending for 2019.

Q: You are considering the following project. What is the NPV of the project? WACC of the project: 0.10…

A: NPV of a project can be found as the difference between present value of cash flow and initial…

Q: Custom Cars purchased $39,000 of fixed assets two years ago that are classified as 5-year MACRS…

A: Initial price= $39000Depreciation in year 1= 20%Depreciation in year 2= 32%Selling price in 2 years…

Q: Soporific Games has forecast sales of $621,568 next year. Given the data in the table, what will…

A: Capex is the amount of expenditure done on equipments to increase in sales. Capex is the difference…

Q: The slope of a regression line when the return on an individual stock's returns are regressed on the…

A: The problem case wants to identify the slope for a regression line that is drawn between the stock's…

Q: Question 3 of 34 You are working with the corporate finance team at your company to estimate how the…

A: Net income measures the total profitability of the company after debiting all the expenses whereas…

Q: You have just won the state lottery and have two choices for collecting your winnings. You can…

A: An annuity is a series of payments made at a fixed interval of time at a specified interest rate to…

Q: If you deposit $8,000 in a bank account that pays 7% interest annually, how much will be in your…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: A project will generate before tax cost savings of $110,000 per year, for five years, create…

A: Cash flows from an investment can be referred to as net income after adding depreciation back to it…

Q: Question 4 What is the price of a straight bond with: $1,000 face value, coupon rate of 5%, a YTM of…

A: C is the annual coupon payment (5% of the face value, which is $1,000 * 0.05 = $50).r is the yield…

Q: Fabulous Fabricators needs to decide how to allocate space in its production facility this year. It…

A: Profitability index (PI), often referred to as the value investment ratio (VIR) or the profit…

Q: n investor bought a stock for $15 (at t=0) and one year later it paid a $1 dividend (at t=1). Just…

A: The rate of return decreases due to inflation and real rate of return is much less than nominal rate…

Q: Describe the different mechanisms available to a firm for repurchasing shares. There are three…

A: A stock buyback, also called a share repurchase, is a financial action where a company uses its own…

Q: A stock currently does not pay any dividends. The stock is expected to begin paying a dividend of…

A: Year 3 dividend (D3) = $1.20Growth rate in dividends (g) = 0.052Required return (r) = 0.124Value per…

Q: Determine the amount of money that must be invested now (time 0) at 10% nominal interest, compounded…

A: An effective annual rate is a financial statistic that accounts for compounding to determine the…

Q: Solomon Electronics is considering investing in manufacturing equipment expected to cost $340,000.…

A: Net present value(NPV) is the difference between present value of all cash inflows and ininitial…

Q: The risk-free rate is 3.6%, and the expected market return is 7.5%. A stock with a beta of 1.2 is…

A: Risk free Rate = rf = 3.6%Market Return = rm = 7.5%Beta = b = 1.2Current Price of Stock = p0 =…

Q: Media Properties has a 4.30% coupon bond outstanding that was issued 5 years ago with an original…

A: The bond price is the discounted value of future coupons and par value of the bond. It is the price…

Q: effective annual interest rate is 6.65% and is nominal. a. Suppose the couple invests money on her…

A: The time value of money recognizes the idea that the value of an amount of money today differs from…

Q: On December 31, 2024, Splish Brothers Corporation signed a 5-year, non-cancelable lease for a…

A: Present Value is the current price of future value which will be received in near future at some…

Q: An investor has owned a property for five years. A property could be sold today for $2 million. It…

A: Current selling price of land = $2,000,000Loan balance = $1,000,000Total in taxes = $250,000IRR for…

Q: Gee-Gee's just paid an annual dividend of $2 a share. The company adheres to a constant rate of…

A: Current Dividend = d0 = $2Growth Rate = g = 2.5%Discount Rate = r = 11.2%

Q: Rosina purchased one 15-year bond at par value when it was initially issued. This bond has a coupon…

A: Current price = PV(7.5%,13.7%*1000,1000)Current price= 959.37

Q: jPhone, Inc., has an equity multiplier of 1.42, total asset turnover of 1.71, and a profit margin of…

A: In this question, we are required to determine the Return on Equity (ROE).

Q: Here are data on two stocks, both of which have discount rates of 14%: Return on equity Earnings per…

A: Dividend per share is a useful tool because it helps investors determine how much income each piece…

Q: Suppose a project has the following cashflows and the discount rate (required return) is 12%. t 0 1…

A: The discounted payback period refers to the time it takes for the cash flows, that have been…

Q: Use the following information to answer the question(s) below. Portfolio Weight Firm Taggart…

A: Beta of portfolio is computed as follows:-Bp = (Ba*Wa)+(Bb*Wb)+(Bc*Wc)whereBp= beta of portfolioBa=…

Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Today a stock is $100, and a call option on this stock with a year to expiration and a
$120 strike price is trading with a $6.06 premium. The risk-free rate is 10%. What is
the premium of a put option on the stock with the same strike and expiration?
$1.28
$6.06
$7.22
$15.15

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Computation

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
The current price of a stock is $33, and the annual risk-free rate is 6%. Acall option with a strike price of $32 and with 1 year until expiration has acurrent value of $6.56. What is the value of a put option written on the stockwith the same exercise price and expiration date as the call option?
Assume a stock price is P120, and in next year, it will either rise by 10 percent or fall by 20 percent. The risk-free interest rate is 6%. A call option on this stock has an exercise price of P130. What is the chance that the stock price will rise? a. 93% b. 87% c. 50% d. 94%
A call option is currently selling for $4.60. It has a strike price of $60 and three months to maturity. A put option with the same strike price sells for $7.20. The risk-free rate is 6 percent and the stock will pay a dividend of $2.10 in three months. What is the current stock price?
A stock is selling today for $110. The stock has an annual volatility of 64 percent and the annual risk-free rate is 7 percent. c. Calculate the fair price for a 1 year European put option with an exercise price of $95. d. Calculate how much the current stock price would need to change for the purchaser of the put option to break even in one year. e. Calculate the level of volatility that would make a $95 call option sell for $30. (Use Goal Seek or Solver). f. Calculate the level of volatility that would make a $95 put option sell for $8. (Use Goal Seek or Solver). Please show work using excel
Suppose that currently, stock BVC is trading at $100 per share. A put option with a strike price of $120 that expires in one year is selling at $11.12. What is the profit to a trader who buys this put option, assuming that in one year the stock price of BVC is $125
The current price of a stock is $55. In 1 year, the price will be either $50or $65. The annual risk-free rate is 5.5%. The stock has an exercise price of $60 and expiresin 1 year.a. Find the range of values for the ending stock price and the call option at the option’sexpiration in 1 year.b. Equalize the range of payoffs for the stock and the option.c. Create a riskless hedged investment. What is the value of the portfolio in 1 year?d. What is the cost of the stock in the riskless portfolio?e. What is the present value of the riskless portfolio?f. From your answers in parts d and e, what is the value of the firm’s call option?
A 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 $95
A stock trades today at $73.14. (a) Write down the intrinsic value of a call option with strike price K = 72.50. (b) Assuming that the option in (a) expires three months from now and that the risk-free interest rate is 4.06% per annum, find a theoretcal lower bound for the price of the option (to the nearest cent). (c) Suppose that the price of the call option (with strike price and expiration date as above) is $1.82. Find the no-arbitrage price for a European-style put option with the same strike price and expiration date.
A stock is selling today for $110. The stock has an annual volatility of 64 percent and the annual 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 of the 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 $95. d. Calculate how much the current stock price would need to change for the purchaser of the put option to break even in one year. e. Calculate the level of volatility that would make a $95 call option sell for $30. (Use Goal Seek or Solver). f. Calculate the level of volatility that would make a $95 put option sell for $8. (Use Goal Seek or Solver). Please show work using excel
Estimate the "Rho" of the following option. Assume that there are 252 days in a trading year and thus exactly 6-months until expiration means 126 trading days until expiration. The option is a call option. The stock is trading at $1,000. The option has exactly 6-months until expiration. The option strike price is $1,050. The risk-free rate is 3%. The stock pays no dividends. Our best estimate of the stock's volatility is 40% annualized. Group of answer choices $.55 $1.12 $1.78
The current price of a non-dividend paying stock is $60. Use a two-step tree to value an American put option on the stock with a strike price of $66 that expires in 2 years. Each step is 12 months, the risk free rate is 5% per annum, and the volatility is 30%. Which of the following is the closest to the option price? O $8.91 O $11.41 O $9.91 O $12.41