Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 21, Problem 7P

Eagletron’s current stock price is $10. Suppose that over the current year, the stock price will either increase by 100% or decrease by 50%. Also, the risk-free rate is 25% (EAR).

  1. a. What is the value today of a one-year at-the-money European put option on Eagletron stock?
  2. b. What is the value today of a one-year European put option on Eagletron stock with a strike price of $20?
  3. c. Suppose the put options in parts a and b could either be exercised immediately, or in one year. What would their values be in this case?
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Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book

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