7. Let S = ($100), K = ($100), = 30%, r = 0.08, t = 1,

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7. Let S = $$100$, K = $$100$, σ = 30%, r = 0.08, t = 1, and δ = 0. Let n = 10. Suppose the stock has an expected return of 15%.

a. What is the expected return on a European call option? A European put option?

b. What happens to the expected return if you increase the volatility to 50%?

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Derivatives Markets Pearson New International Edition

ISBN: 978-1292021256

3rd Edition

Authors: Robert L. Mcdonald

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7. Let S = ($100), K = ($100), = 30%, r = 0.08, t = 1,

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Derivatives Markets Pearson New International Edition

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