Value of one month call option with $40 as an exercise price.

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Answer 1

Question

Chapter 21, Problem 3PS

a)

Summary Introduction

To determine: Value of one month call option with $40 as an exercise price.

b)

Summary Introduction

To determine: Value of delta.

c)

Summary Introduction

To determine: The way payoffs of this call option be replicated based on replicated portfolio method.

d)

Summary Introduction

To determine: Value of two month call option with $40 as an exercise price.

e)

Summary Introduction

To determine: Value of delta.

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The stock price of Heavy Metal (HM) changes only once a month: either it goes up by 26% or it falls by 19.3%. Its price now is $43. The interest rate is 0.5% per month. a. What is the value of a one-month call option with an exercise price of $43? b. What is the option delta? c. The payoffs of the call option can be replicated by buying shares of stock and borrowing. What amount should be invested in stock and what amount must be borrowed? d. What is the value of a two-month call option with an exercise price of $42? e. What is the option delta of the two-month call over the first one-month period? Complete this question by entering your answers in the tabs below. Req A and B Req C Req D and E d. What is the value of a two-month call option with an exercise price of $42? (Do not round intermediate calculations. Round your answer to 1 decimal place.) e. What is the option delta of the two-month call over the first one-month period? (Do not round intermediate calculations. Round your…

What are the prices of a call option and a put option with the following characteristics? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Stock price Exercise price Risk-free rate = $70 = $65 = 4.2% per year, compounded continuously = 4 months Maturity Standard deviation = 60% per year Call price=? Put price=?

1. The stock price of Heavy Metal (HM) changes only once a month: either it goes up by 20% or it falls by 16.7%. Its price now is $40. The interest rate is 12.7% per year, or about 1% per month. a. What is the value of a one-month call option with an exercise price of $40? b. What is the option delta? c. What is the option delta of the two-month call over the first one-month period? d. Show how the payoffs of this call option can be replicated by buying HM’s stock andborrowing. e. What is the value of a two-month call option with an exercise price of $40?

Answer 2

Question

Chapter 21, Problem 3PS

a)

Summary Introduction

To determine: Value of one month call option with $40 as an exercise price.

b)

Summary Introduction

To determine: Value of delta.

c)

Summary Introduction

To determine: The way payoffs of this call option be replicated based on replicated portfolio method.

d)

Summary Introduction

To determine: Value of two month call option with $40 as an exercise price.

e)

Summary Introduction

To determine: Value of delta.

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Answer 3

Question

Chapter 21, Problem 3PS

a)

Summary Introduction

To determine: Value of one month call option with $40 as an exercise price.

b)

Summary Introduction

To determine: Value of delta.

c)

Summary Introduction

To determine: The way payoffs of this call option be replicated based on replicated portfolio method.

d)

Summary Introduction

To determine: Value of two month call option with $40 as an exercise price.

e)

Summary Introduction

To determine: Value of delta.

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Answer 4

Question

Chapter 21, Problem 3PS

a)

Summary Introduction

To determine: Value of one month call option with $40 as an exercise price.

b)

Summary Introduction

To determine: Value of delta.

c)

Summary Introduction

To determine: The way payoffs of this call option be replicated based on replicated portfolio method.

d)

Summary Introduction

To determine: Value of two month call option with $40 as an exercise price.

e)

Summary Introduction

To determine: Value of delta.

Expert Solution & Answer

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Answer 5

Chapter 21, Problem 3PS

a)

Summary Introduction

To determine: Value of one month call option with $40 as an exercise price.

b)

Summary Introduction

To determine: Value of delta.

c)

Summary Introduction

To determine: The way payoffs of this call option be replicated based on replicated portfolio method.

d)

Summary Introduction

To determine: Value of two month call option with $40 as an exercise price.

e)

Summary Introduction

To determine: Value of delta.

Answer 6

Chapter 21, Problem 3PS

a)

Summary Introduction

To determine: Value of one month call option with $40 as an exercise price.

Answer 7

Chapter 21, Problem 3PS

a)

Summary Introduction

To determine: Value of one month call option with $40 as an exercise price.

Answer 8

b)

Summary Introduction

To determine: Value of delta.

Answer 9

b)

Summary Introduction

To determine: Value of delta.

Answer 10

c)

Summary Introduction

To determine: The way payoffs of this call option be replicated based on replicated portfolio method.

Answer 11

c)

Summary Introduction

To determine: The way payoffs of this call option be replicated based on replicated portfolio method.

Answer 12

d)

Summary Introduction

To determine: Value of two month call option with $40 as an exercise price.

Answer 13

d)

Summary Introduction

To determine: Value of two month call option with $40 as an exercise price.

Answer 14

e)

Summary Introduction

To determine: Value of delta.

Answer 15

e)

Summary Introduction

To determine: Value of delta.

Answer 16

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Answer 17

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Answer 18

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Answer 19

Ch. 21 - Binomial model Over the coming year, Ragworts...Ch. 21 - Binomial model Imagine that Amazons stock price...Ch. 21 - Prob. 3PS Ch. 21 - Binomial model Suppose a stock price can go up by...Ch. 21 - Prob. 6PS Ch. 21 - Two-step binomial model Suppose that you have an...Ch. 21 - Prob. 8PS Ch. 21 - Option delta a. Can the delta of a call option be...Ch. 21 - Option delta Suppose you construct an option hedge...Ch. 21 - BlackScholes model Use the BlackScholes formula to...

Value of one month call option with $40 as an exercise price.

To determine: Value of one month call option with $40 as an exercise price.

To determine: Value of delta.

To determine: The way payoffs of this call option be replicated based on replicated portfolio method.

To determine: Value of two month call option with $40 as an exercise price.

To determine: Value of delta.

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Chapter 21 Solutions