Answer 12-15

II. Binomial option pricing formula Let K = 60, S = 60, u = 1.45, d = 0.65, r = 5% and that you are three years from expiration. Base your answers on a 3-step tree. 8. How many up moves a are required to ensure that a call option finishes in the money: (a) 0; (b) 1; C) 2; (d) 3; 9. What is the risk neutral probability p: (a) 0.1; (b) 0.2; (C) 0.5; (d) 0.8; 10. What is erT: (8) 1.45; (b) 1.05; (C) 0.95; (d) 0.86; The binomial option pricing formula is given by C = e... (j;n, p) Suict-i - K]. 11. The value of the term (2:3,p) is: (a) 0.38; (b) 0.63; (C) 0.77; (d) 0.85; 12. The value of the term (3:3,7) is: (a) 0.61; (b) 0.82; (C) 0.13; (d) 0.50; 13. The value of the term (2:3,p) (Sud - Kis: (a) 8.28; (b) 6.42; (C) 25.37; (d) 18.34; 14. The value of the term 0(3:3,p) Sud - K: (a) 5.94; (b) 15.51; (C) 2.91; (d) 12.25; 15. The binomial value of the call is: (a) 10.32; (b) 18.45; C) 20.47; (d) 13.35; 3 II. Binomial option pricing formula Let K = 60, S = 60, u = 1.45, d = 0.65, r = 5% and that you are three years from expiration. Base your answers on a 3-step tree. 8. How many up moves a are required to ensure that a call option finishes in the money: (a) 0; (b) 1; C) 2; (d) 3; 9. What is the risk neutral probability p: (a) 0.1; (b) 0.2; (C) 0.5; (d) 0.8; 10. What is erT: (8) 1.45; (b) 1.05; (C) 0.95; (d) 0.86; The binomial option pricing formula is given by C = e... (j;n, p) Suict-i - K]. 11. The value of the term (2:3,p) is: (a) 0.38; (b) 0.63; (C) 0.77; (d) 0.85; 12. The value of the term (3:3,7) is: (a) 0.61; (b) 0.82; (C) 0.13; (d) 0.50; 13. The value of the term (2:3,p) (Sud - Kis: (a) 8.28; (b) 6.42; (C) 25.37; (d) 18.34; 14. The value of the term 0(3:3,p) Sud - K: (a) 5.94; (b) 15.51; (C) 2.91; (d) 12.25; 15. The binomial value of the call is: (a) 10.32; (b) 18.45; C) 20.47; (d) 13.35; 3