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The current price of one share of XYZ stock is 100. The stock does not pay dividends. Over the next six months, the stock price

  1. The current price of one share of XYZ stock is 100. The stock does not pay dividends. Over the next six months, the stock price will either increase by 30%, or decrease by 20%. The continuously compounded risk-free rate is 6%. (a). Determine the price of a 6-month call option with a strike price of 110 using the replicating portfolio method. (B). Determine the price of a 6-month put option with a strike price of 110.
  2. The current price of one share of ZZZ stock is 80. The stock does not pay dividends. The stocks volatility is 25% and the continuously compounded risk-free rate is 8%.Use a one-step binomial tree model to determine the price of a three-month put option on the stock with a strike price of 80.
  3. The current price of a non-dividend paying stock is 100. Future stock prices follow the u and d defined in terms of the stocks volatility, which is . At the end of one year the price of the stock will either go up to 115.00 or down to 90.51.The continuously compounded risk-free rate is r. (A) Determine r and .

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