* Today you buy two European vanilla call options at a strike price of 460 pence, and threeEuropean vanilla put options at a strike price of 420 pence. The price of a European call is18.75 pence and the price of a European put is 7.75 pence. The underlying asset for eachoption is one share in the XYZ company. On the expiry date, the share price of XYZ shares is470 pence. Calculate, showing all steps, your rate of return R on this transaction.

To compute the rate of return (R) on a transaction using European vanilla call and put options,…

Answered: * Today you buy two European vanilla…

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

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shares in Landau plc are traded on the stock market and are currently valued at eu 5 per share. the expected anually compunded annual risk-free rate of interest is 8%. Assuming that the share price of landau plc will either fall in value by 20% or rise in value by 50% each year, calculate the value, according to the binomial option pricing model, of a european call option which entitles its holder to buy one share in landau plc for eu 8 in the three year's time
A company's stock currently sells for $131.55. A one-year European put option on that stock with strike price of $140 sells for $22.1, and the risk free interest rate is 1.07%. The market expects the company to pay dividends during that period, and the market consensus is that present value of those dividends is $3.52. The price of a one-year European call option on that stock with strike price of $140 is $ (Note i: answer must be accurate to the nearest cent). (Note ii. Use annual compounding NOT exponential compounding for the purpose of this question).
Tembo holds a one-year put option on Shoprite common stock. The put option can be exercised at K50. Assume that the expiration date has arrived and the premium is K3. What is the value of the Shoprite put option on the expiration date if: Shoprite common stock is selling at K56 per share? Shoprite common stock is selling at K45 per share?
AMEX stock is currently trading at $150. The price of a European call on AMEX with a strike price of $150 is $5. The call expires in 1-month. The risk-free rate is 2.5%. What is the fair value of a European put on AMEX which has a $150 strike and expires in 1-month? O $3.73 O $4.69 O $5.00 O $5.83
You are given the following information: The current price to buy one share of XYZ stock is 500. The stock does not pay dividends. The risk-free interest rate, compounded continuously, is 6%. • A European call option on one share of XYZ stock with a strike price of K that expires in one year costs 66.59. • A European put option on one share of XYZ stock with a strike price of K that expires in one year costs 18.64. Using put-call parity, determine the strike price, K.
5. Shares in Rugby plc, a non-dividend-paying company, are trading at £7.50. A one-year European call option on Rugby plc stock with strike price £8.00 has a risk-neutral probability of exercise equal to 40%. Explain what this implies about the risk-neutral probability of exercise for a one-year European put option on Rugby plc with strike price £8.00. *
The price of a stock, which agreed to pay 2$ dividends per share, is $45 and the strike price of a one-year European call option on the stock is $43. The risk-free rate is 7% (continuously compounded). Which of the following is a lower bound for the option? option 1 - $5.98 option 2- $2.91 option 3 - $2.54 option 4 -$4.14
1. A company’s share is currently traded at the price of £18.49. A dividend on this share is paid continuously at rate q and is reinvested in the share. Two options are available on the market with the same strike price of £18 and the same maturity time of 6 months. European Call option is worth of £1.72 and a European Put option is priced at £1.52. Assuming the continuously compounded interest rate is 16%, find the dividend rate.
Today on August 18 Tesla Inc. stock (TSLA) trades at a spot price of $220 per share. A trader decides to buy a European call option contract (= 100 call options) on the stock with a strike price of $220 and maturity September 15 (i.e., in one month). The price of the European call option contract is $12 per option. (i) Under what circumstances does the trader make a gain on September 15? (ii) What is the maximum possible gain for the trader? (iii) What is the maximum possible loss for the trader? Provide short answers for (i). (ii), (iii).
Nanno Company offers its investors option contracts to buy their shares at a price of P50. Currently, the value of their stocks in the market stands at P60. The 52-week high of the share price is P83 and its 52-week low is P47. The treasury bill issued by the government yields 8.25% currently. REQUIRED: What’s the probability for the up move? What’s the probability for the down move? How much is the total option pay off for the stock? What should be the reasonable price of the option contracts of the company?
The shares of toll road operator TransRural currently trade for $15 per share. Over the next 3 months, the shares can either go down to SD = (1-x)*$15 or up to SU = (1+x)*$15 per share. The risk-free rate equals 1+R = 1.03. A 3-month European call option with a strike price equal to $20 trades for a price of $2.04. What is the value of ‘x’, to 1 decimal place? A. None of the other answers is correct. B. 5 C. 1 D. 6 E. 5
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