The price of a non-dividend paying stock is now $40. Over each of the next two three-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 4% per annum with continuous compounding. a. Calculate the risk-neutral probability p of an up-move over each three-month period b. Calculate the value of a six-month European call option with a strike price of $42 c. Calculate the value of a six-month European put option with a strike price of $42 d. If the six-month put option was American instead of European, how would you expect its value to be different (higher, the same, or lower) than the European one? Please explain

The price of a non-dividend paying stock is now $40. Over each of the next two three-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 4% per annum with continuous compounding. a. Calculate the risk-neutral probability p of an up-move over each three-month period b. Calculate the value of a six-month European call option with a strike price of $42 c. Calculate the value of a six-month European put option with a strike price of $42 d. If the six-month put option was American instead of European, how would you expect its value to be different (higher, the same, or lower) than the European one? Please explain

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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Need ASAP PLS A stock price is currently $65. After each 6 month, the price is expected to go up by or down with the volatility of 25%. The risk-free rate interest rate is 7% per annum with continuous compounding. Questions What will be the risk-neutral probability of an up move - p? What is the value of a 6-month European Call option with a strike price of $65?
Give typing answer with explanation and conclusion A stock price is currently $40. Over each of the next two three-month periods it is expected to go up by 10% or down by 10%. The risk-free rate is 12% per annum with continuous compounding. What is the value of a six-month American put option with a strike price of $42? (Round your answer to the 4 decimal places)
Give typing answer with explanation and conclusion J&J stock price is currently trading at $100. Over each of the next two three-month periods it is expected to go up by 8% or down by 7%. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of the first 3-month if it is expected to down by 7% European call option with a strike price of $95? Compute the current price if use American call option with a strike price of $95. (draw the tree figure for stock movement).
Suppose ABC's stock price is currently $25. In the next six months it will either fall to $15 or rise to $40. What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5% (periodic rate). [Use the riskneutral valuation method]A. $20.00 B. $8.57 C. $9.52 D. $13.10
2. a. Calculate the price of a four-month European put option on a non- dividend-paying stock with a strike price of $60 when the current stock price is $55, the continuously compounded risk-free interest rate is 10% per annum, and the volatility is 31% per annum. b. Calculate the price of the put option if a dividend of $2.50 is expected in three months.
1. A European call option and put option on a stock both have a strike price of $20 and an expiration date in three months. Both sell for $3. The risk-free interest rate is 10% per annum, the current stock price is $19 and a $1 dividend is expected in one month. Identify the arbitrage opportunity to the trader.
A stock price is currently $50. Over each of the next two three-month periods it is expected to go up by 6% or down by 5%. The risk-free rate is 5% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $51? (Round your answer to the 4 decimal places) Consider the setting of the previous problem but now find the value of a six-month European put option with a strike price of $51. (Round your answer to the 4 decimal places)
A stock price is currently $100. Over each of the next two three-month periods it is expected to increase by 10% or fall by 10% per period. Consider a six-month European put option with a strike price of $95. The risk-free interest rate is 8% per annum, compounded continuously. What is the value of the option? Question 1 options: 1.50 3.25 2.14 None of the above
A stock price is currently $100. Over each of the next two 6-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 8% per annum with continuous compounding. a. What is the value of a 1-year European call option with a strike price of $100? b. What is the value of a 1-year European put option with a strike price of $100?
The current price of a stock is $30. Over each of the next two three-month periods it is expected to go up by 5% or down by 5%: The risk-free interest rate is 12% per annum with continuous compounding. What is the value of a six-months European put option with a strike price of $32? Please solve by hand and show all the steps of answer in order me to understand it at best :)
Assume only two states will exist one year from today when a call on Delta Transportation, Inc. stock expires. The price of Delta stock will be either $60 or $40 on that date. Today, Delta stock trades for $55. The strike price of the call is $50. The continuously compounded risk - free rate is 9%. a. What is the tracking portfolio (\Delta and b)? b. How much are you willing to pay for the call option?
Question 4 - A stock price is currently worth $20. It is known that at the end of a 6 month period it is expected to go up by 8% or down by 5%. The risk-free interest rate is 4% per annum with continuous compounding. Use a two-step tree to calculate the value of a 1-year American exotic option whose payoff is payoff max (S+ ST - S²; 0). State in which node the option is early exercised.

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