Question
The current price of a stock is $21. In 1 year, the price will be either $28 or $14. The annual risk-free rate is 4%.
The current price of a stock is $21. In 1 year, the price will be either $28 or $14. The annual risk-free rate is 4%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet Find the price of a call option on the stock that has a strike price is of $24 and that expires in 1 year. (Hint: Use daily compounding.) Assume 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent. PLEASE SHOW FORMULAS IN EXCEL.
| Binomial Model | |||||
| Current price | $21.00 | ||||
| High price, Year 1 | $28.00 | ||||
| Low price, Year 1 | $14.00 | ||||
| Risk-free rate, rRF | 4.00% | ||||
| Strike price | $24.00 | ||||
| Time until expiration (in years) | 1.00 | ||||
| Number of days per year | 365 | ||||
| Outcome | Stock Price | Strike Price | Option Payoff | ||
| Price up | $28.00 | $24.00 | $4.00 | ||
| Price down | $14.00 | $24.00 | $0.00 | ||
| Range | $14.00 | $4.00 | |||
| Formulas | |||||
| Number of shares of stock to purchase to create hedge portfolio, Ns : | #N/A | ||||
| Hedge portfolio's payoff if stock price up | #N/A | ||||
| Hedge portfolio's payoff if stock price down | #N/A | ||||
| Present value of hedge portfolio | #N/A | ||||
| Value of call option, VC | #N/A | ||||
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Financial Literacy For Young Adults Simplified Discover How To Manage Save And Invest Money To Build A Secure And Independent Future
Authors: Raman Keane
1st Edition
8399806501, 979-8399806501
