Question
The current price of a stock is $77, the sigma is 0.20 and the continuously-compounded risk-free rate is 4%. The stock does not pay any
The current price of a stock is $77, the sigma is 0.20 and the continuously-compounded risk-free rate is 4%. The stock does not pay any dividends. We want to price a call and a put option with strike of 75 and three months to maturity on this stock.
Suppose we use a two-step binomial tree method to determine the price of the call and put option on the stock:
The value of u is ____.
The value of d is ____.
The value of uuS0 is ____.
The value of udS0 is ____.
The value of Cuu is ____.
The value of Cdd is ____.
The value of Cu is ____.
The value of Puu ____.
The value of Pud ___.
The value of Pu ____.
The probability P* for the call option is ____.
The price of a call option C is ____.
The price of a put option P is ____.
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Answer The values of u and d are calculated using the formula u eT and d eT where is the volatility ...
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Introduction To Corporate Finance
Authors: Laurence Booth, Sean Cleary
3rd Edition
978-1118300763, 1118300769
