Question
Hi. Is it possible to ask for the solution to a, b, c and d for Q 4.8 (intermediate microeconomics and its application 12th ed)
Hi. Is it possible to ask for the solution to a, b, c and d for Q 4.8 (intermediate microeconomics and its application 12th ed) the same way solutions are given for previous questions? I just want to make sure my working out is along the right lines.
4.8.
The option on Microsoft stock described in Application 4.4: Puts, Calls, and Black-Scholes gave the owner the right to buy one share at $32 one month from now. Microsoft currently sells for $30 per share, and investors believe there is a 50-50 chance that it could become either $35 or $25 in one month. Now lets see how various features of this option affect its value:
a) How would an increase in the strike price of the option, from $32 to $33, affect the value of the option?
b) How would an increase in the current price of Microsoft stock, from $30 to $31 per share, affect the value of the original option?
c) How would an increase in the volatility of Microsoft stock, so that there was a 50-50 chance that it could sell for either $40 or $20, affect the value of the original option?
d) How would a change in the interest rate affect the value of the original option? Is this an unrealistic feature of this example? How would you make it more realistic?
Thanks :)
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