Question
On November 1, 2011,Target stock closed at 50. You forecast that six months from that date Target stock price will be either $60 or $40.
On November 1, 2011,Target stock closed at 50. You forecast that six months from that date Target stock price will be either $60 or $40. If the stock price rises to $60, then on November 1, 2012 the price will be either $70 or $50. If the stock price falls to $40, then on November 1, 2012 the price will be either $50 or $30. Using the BOPM, determine the value of two Europeanputoptions on Target with the same exercise price of $55 that expires on May 2, 2012 and November 1, 2012, respectively. Assume that the six month risk-free rate of return is 2%. Comparing the two prices, what do you observe?
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
