A stock is currently trading at S = $40, during next 6 months stock price will...
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A stock is currently trading at S = $40, during next 6 months stock price will increase to $44 or decrease to $32. 6-month risk-free rate is ry = 2%. a. [4pts] What positions in stock and T-bills will you put to replicate the pay off of a European call option with K = $38 and maturing in 6 months. b. [1pt] What is the value of this European call option? Problem 2 Suppose that stock price will increase 5% and decrease 5% every year. The stock does not pay dividend and curretly is tradding at S = $100. Annual risk-free rate is ry = 3%. a. [3pts] Construct a two-year binomial tree for the value of the stock. b. [3pts] Calculate the value of a European call option on the stock with an exercise price of $101. c. [3pts] Calculate the value of a European put option on the stock with an exercise price of $101. d. [1pt] Confirm that your solutions for the values of the call and the put satisfy put-call parity. e. [5pts] [Extra credit and not required] Calculate the value of an American put option on the stock with an exercise price of $101. A stock is currently trading at S = $40, during next 6 months stock price will increase to $44 or decrease to $32. 6-month risk-free rate is ry = 2%. a. [4pts] What positions in stock and T-bills will you put to replicate the pay off of a European call option with K = $38 and maturing in 6 months. b. [1pt] What is the value of this European call option? Problem 2 Suppose that stock price will increase 5% and decrease 5% every year. The stock does not pay dividend and curretly is tradding at S = $100. Annual risk-free rate is ry = 3%. a. [3pts] Construct a two-year binomial tree for the value of the stock. b. [3pts] Calculate the value of a European call option on the stock with an exercise price of $101. c. [3pts] Calculate the value of a European put option on the stock with an exercise price of $101. d. [1pt] Confirm that your solutions for the values of the call and the put satisfy put-call parity. e. [5pts] [Extra credit and not required] Calculate the value of an American put option on the stock with an exercise price of $101.
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Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
Posted Date:
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