Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:1. Using the following three-step binomial tree to compute the price of an European call
option with strike price $90 and T = 6 months. The initial price for the underlying stock
3. d =/.
0.05 per annum. St 2 months. u =
=
is $80. r
=
80
180
04
125
156.25
100
+
40.96
Figure 2.10: A binomial tree
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- The following two-step binomial tree depicts the quarterly price path of an underlying share for an American call option. Each step represents a quarter of a year. The strike price of this option is $40 and the risk free rate is 5% pa. a) Calculate the payoff of the option at point (b). Give your answer in dollars and cents to the nearest cent. Payoff at point (b) = $ Binomial Share Prices a) b) c) d) e) f) $41.00 $43.87 $38.13 $46.94 $40.80 $35.46 a) b) Calculate the value of the option at point (b). Give your answer in dollars and cents to the nearest cent. Value of the option at point (b) = $ b) c) -d) e) f)arrow_forwardThe price of a non-dividend paying stock is $14 and the price of a six-month European call option on the stock with a strike price of $26 is $1. The risk-free rate is 7% per annum. What is the price of a six- month European put option with a strike price of $26?arrow_forwardThe price of a European call option on a non dividend paying stock with a strike price of $79 is $8. The stock price is $75, the continuously compounded risk-free rate (all maturities) is 4.50% and the time to maturity is one year. a. What is the price of a one year European put option on the stock with a strike price of $79? (Hint: Use the Put-Call Parity Formula).arrow_forward
- A stock price is currently 50 and after 6-months it can be either 60 or 42. The risk-free rate is 12% (continuous compounding). The no-arbitrage price of a 6-month european call option written on this stock with strike 50 is (a) 2.89 (b) 3.61 (c) 4.64 (d) 5.80 (e) 6.96arrow_forwardCalculate the value of a call option for the following stock. Use the Black-Scholes formula. Time to expiration Standard deviation Exercise price Stock price Annual interest rate Dividend 6 months 50% per year $50 $50 3% 0 (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of a call optionarrow_forwardCalculate the upper and lower bounds for the price of a 4-month European call option on a non-dividend-paying stock when the stock price is $28, the strike price is $25 and the risk-free rate is 8% p.a. compounded continuously. '0arrow_forwardBasic information of an American put option: Remaining maturity: two month; risk-free rate: 5% (continuously compounded); the underlying current Price: 50; Annual Volatility: 20%; Final Price: 50. Try to construct a two-phase binary tree to price itarrow_forwardThe current stock price of MRF is ₹ 81000. A European call option on the stock with exercise price of ₹ 75000 will expire in 40days. The annual continuously compounded risk-free interest rate is 10%, standard deviation of the continuously compounded rate of return is 60% p.a. Calculate the value of the Call option. Find the value of the Put option using Put-Call Parity Rule.arrow_forwardThe following 1-year European call options are available on the stock of Vega International, whose stock is trading at €72.50: Strike Price Call Price (€) (€) 60 8.00 75 3.00 90 2.00 What is the maximum profit realised at maturity from a long butterfly spread created from these call options? Assume a risk-free rate of 5%.arrow_forwardWhat is the value of d, of a European call option on a non-dividend-paying stock when the stock price is $60, the strike price is $59, the risk-free interest rate is 5% per annum the volatility (Standard Deviation) is 30% per annum, and the time to maturity is three months? c=SN(d,)-Ke-N(₂) where and O√T OA02704 OB0.2167 *√T OC.0.3561 OD.0.1204arrow_forwardWhat is the price of an American CALL option that is expected to pay a dividend of $2 in three months with the following parameters? s0 = $40d = $2 in 3 monthsk = $43 r = 10%sigma = 20%T = 0.5 years (required precision 0.01 +/- 0.01)arrow_forwardThe current price of a non-dividend paying stock is $30. Use a two-step tree to value a European put option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 896, and u = 1.1 and d = 0.9. O $2.24 $2.44 $2.64 $2.84arrow_forwardarrow_back_iosSEE MORE QUESTIONSarrow_forward_ios
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