1. The current price of the BNM stock is $60.00. The stock pays no dividends. The current continuously compounded risk free rate is 4% per year. At the end of one year, the stock will either be valued at $72.00 or $50.00. Recall that a straddle is made up of one long call option and one long put option. Using the one step binomial tree model, calculate the price of a one-year straddle with a strike price of $62.50. 2. A certain stock is currently trading at $100.00 per share. The stock pays no dividends. The volatility of the stock is 30%. Find the price of a 6-month call option with a strike price of 102. The current risk free rate is 3%. 3. Use the information from question 2 to create a portfolio that replicates the payoff of the call option. How many shares of stock and how much cash would you need? 4. Today the price of one share of TMQ stock is $120. The continuously compounded risk-free rate is 5%. Edgar Derby is asked to use a one-step binomial tree model to price a one-year call option on TMQ with a strike price of $120. The price of one share of TMQ stock at the end of one year will either increase to X or decrease to $100. The risk-neutral probability of the stock decreasing is.55. Edgar's analysis shows the price of the call option is $13.00, determine X. 1. The current price of the BNM stock is $60.00. The stock pays no dividends. The current continuously compounded risk free rate is 4% per year. At the end of one year, the stock will either be valued at $72.00 or $50.00. Recall that a straddle is made up of one long call option and one long put option. Using the one step binomial tree model, calculate the price of a one-year straddle with a strike price of $62.50. 2. A certain stock is currently trading at $100.00 per share. The stock pays no dividends. The volatility of the stock is 30%. Find the price of a 6-month call option with a strike price of 102. The current risk free rate is 3%. 3. Use the information from question 2 to create a portfolio that replicates the payoff of the call option. How many shares of stock and how much cash would you need? 4. Today the price of one share of TMQ stock is $120. The continuously compounded risk-free rate is 5%. Edgar Derby is asked to use a one-step binomial tree model to price a one-year call option on TMQ with a strike price of $120. The price of one share of TMQ stock at the end of one year will either increase to X or decrease to $100. The risk-neutral probability of the stock decreasing is.55. Edgar's analysis shows the price of the call option is $13.00, determine X
