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Consider a European call option on a stock, with a $15 strike and 1-year to expiration. The stock has a continuous dividend yield of 0%, and its current price is $64. Suppose the volatility of the stock is 13%. The continuously compounded risk-free interest rate is 9% and the continuously compounded return is a = 13%. Use a one-period binomial tree to calculate the following: (a) The payoff for up movement. (b) The payoff for down movement. (c) The corresponding replicating portfolio: The number of shares. (d) The corresponding replicating portfolio: The lent/borrowed amount. (e) The option premium. (1) The true probability of the stock going up. (g) The actual expected payoff of the option. (h) The appropriate per-period discount rate y. (A) 65.75 (B) 61.75 (C) 63.75 (D) 62.75 (E) 64.75 (a): Select Part (a) choices. (A) 47.49 (B) 46.49 (C) 45.49 (D) 44.49 (E) 43.49 (b): Select Part (b) choices. (A) 1.00 (B) 0.00 (C)-1.00 (D) -3.00 (E)-2.00 (c): Select v f Part (c) choices. (A) -15.71 (B) -16.71 (C)-12.71 (D) -13.71 (E)-14.71 (d): Select Part (d) choices. (A) 49.29 (B) 53.29 (C) 52.29 (D) 51.29 (E) 50.29 (e): Select Part (e) choices. (A) 0.62 (B) 0.60 (C) 0.59 (D) 0.61 (E) 0.58 (f): Select 1 Part (f) choices. (A) 56.89 (B) 59.89 (C) 57.89 (D) 58.89 (E) 60.89 Consider a European call option on a stock, with a $15 strike and 1-year to expiration. The stock has a continuous dividend yield of 0%, and its current price is $64. Suppose the volatility of the stock is 13%. The continuously compounded risk-free interest rate is 9% and the continuously compounded return is a = 13%. Use a one-period binomial tree to calculate the following: (a) The payoff for up movement. (b) The payoff for down movement. (c) The corresponding replicating portfolio: The number of shares. (d) The corresponding replicating portfolio: The lent/borrowed amount. (e) The option premium. (1) The true probability of the stock going up. (g) The actual expected payoff of the option. (h) The appropriate per-period discount rate y. (A) 65.75 (B) 61.75 (C) 63.75 (D) 62.75 (E) 64.75 (a): Select Part (a) choices. (A) 47.49 (B) 46.49 (C) 45.49 (D) 44.49 (E) 43.49 (b): Select Part (b) choices. (A) 1.00 (B) 0.00 (C)-1.00 (D) -3.00 (E)-2.00 (c): Select v f Part (c) choices. (A) -15.71 (B) -16.71 (C)-12.71 (D) -13.71 (E)-14.71 (d): Select Part (d) choices. (A) 49.29 (B) 53.29 (C) 52.29 (D) 51.29 (E) 50.29 (e): Select Part (e) choices. (A) 0.62 (B) 0.60 (C) 0.59 (D) 0.61 (E) 0.58 (f): Select 1 Part (f) choices. (A) 56.89 (B) 59.89 (C) 57.89 (D) 58.89 (E) 60.89
