Question
Lon Musky Corp. stock sells today for $25 per share, and the risk-free rate is 2.5% per year, continuously compounded. Three months from now, the
Lon Musky Corp. stock sells today for $25 per share, and the risk-free rate is 2.5% per year, continuously compounded.
Three months from now, the price will be either $30 or $20.
1.Using the binomial approach, find the value of a European call option with an exercise price of $25.
2.Using the binomial approach, find the value of a European put option with an exercise price of $25.
3.Verify the put-call parity using the results of questions 1 and 2.
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Fundamentals of Corporate Finance
Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan
12th edition
007353062X, 73530628, 1260153592, 1260153590, 978-1260153590
