question 13

13. Risk-Neutral Valuation A stock is currently priced at $66. The stock will either increase or decrease by 13 percent over the next year. There is a call option on the stock with a strike price of $60 and one year until expiration. If the risk-free rate is 6 percent, what is the risk-neutral value of the call option? 14. Risk-Neutral Valuation in the previous problem, assume the risk-free rate is only 4 percent. What is the risk-neutral value of the option now? What happens to the risk-neutral probabilities of a stock price increase and a stock price decrease? 15. Black-Scholes A call option matures in six months. The underlying stock price is $75, and the stock's return has a standard deviation of 20 percent per year. The risk-free rate is 4 percent per year, compounded continuously. If the exercise price is $0, what is the price of the call option? 16. Black-Scholes A call option has an exercise price of $70 and matures in six months. The current stock price is $74, and the risk-free rate is 4 percent per year, compounded continuously. What is the price of the call if the standard deviation of the stock is 0 percent per year? Int (