45. You are evaluating a stock selling for $30 per share. Over the investment period (1 year)you think that the stock might go as low as $20 or as high as $40. The relevant interest rateis 6% (you can borrow or lend at this rate)There is a call option (European) available with an exercise price of $35. What wouldthe price of one call be given this information? (closest to)A) )$9.06 B)$2.78 C)$2.82D)$4.12

Step 1: Step 2: Step 3: Step 4:

Answered: 45. You are evaluating a stock selling…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The current price of a non-dividend paying stock is $30. Use a two -step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per annum with continuous compounding. What is the option price when the volatility is 20%? (Hint: Calculate u and d using the CRR approach.) A. $1.48 B. $1.08 C. $1.68 D. $1.28
7) Consider a European call option on a -dividend-paying stock where the stock price is $40, the strıke price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is six months. A dividend of $1 is expected in 3 months' time a. Calculate u, d̟ and p for a two-step tree b. Value the option using a two-step tree. c. Value the option with 5 time steps using DerivaGem software.
The price of Bobco stock is currently $60. In one year, the price will either be s66 or $54. If the one-year risk free rate of interest is 6%, what is the price of a Bobco call option with an exercise price of $61? Recall, you will want to set 66N - 1.06B = 5 as one of the equations you need to solve this problem. You will need to figure out the other equation, then use both equations to solve for N and B. Then, you will price the portfolio of N shares less the amount borrowed. Round your answer to nearest cent. $6 $60 $54
A stock price is currently $30. It is known that at the end of one year, it will be either $36 and $24. The exercise price of a one-year European call option is $32. The risk-free interest rate is 5% per annum. a. Construct a binomial tree to show the payoff of the call option at the expiration date. b. Based on the binomial tree model, what is the value of the call option?
Eagletron's current stock price is $10. suppose that over the current year, the stock price will either increase by 100% or decrease by 50%. Also , the risk free rate is 25% (EAR). A) what is the value today of a one- year at- the- money European Put Option on Eagletron's stock?
A stock is selling today for $110. The stock has an annual volatility of 64 percent and the annual risk-free rate is 7 percent. c. Calculate the fair price for a 1 year European put option with an exercise price of $95. d. Calculate how much the current stock price would need to change for the purchaser of the put option to break even in one year. e. Calculate the level of volatility that would make a $95 call option sell for $30. (Use Goal Seek or Solver). f. Calculate the level of volatility that would make a $95 put option sell for $8. (Use Goal Seek or Solver). Please show work using excel
Consider the following information on AAPL. The current stock price is $326.72. The call option has a strike price of $320. The price of the call option is $68. The option has 1 year till expiration. Question: Suppose you purchase the option at the current price and hold it until expiration. If the stock price at expiration is $350, the return on your investment is: -55.88% 44.11% -100% None of the above
D4) Finance Calculate the price of a 3-month American put option on a non-dividend-paying stock when the stock price is $50, the strike price is $50, the risk-free interest rate is 5% per annum, and the volatility is 25% per annum. Use a binomial tree with a time interval of 1 month.
1. Consider an option on a non-dividend paying stock when the stock price is $30, the exercise price is $28, the annual interest rate is 5%, the annual volatility is 25%, and the time to maturity is 6 months. Show the details of your calculations. a) What is the price of the option if it is a European call?
Modigliani-Miller Theorem I. 7. Options A. How does the price of a call option respond to the following changes, other things equal? Does the price go up or down? Explain briefly the intuition for your answer. (i). Exercise price rises. (ii). Volatility of stock price rises. 3
Let us consider a stock (called "stock A") whose price today is €12. Supposethat in six months' time the price can only go up to €16 or down to €10.Suppose the interest rate is 10% per annum continuously compounded.Let us consider a call option (called "call option B") written on this stock,with maturity date of 6 months and strike price €13.(a) Determine the fair price c for this call option (show all the steps of yourwork).Assume that the seller of call options B starts with zero capital, sells 100call options (each at the fair price c obtained in the previous question), andborrows money to buy A shares of the stock A.(b) How many shares should he buy in order to run no risk at the end of thesix months period?
3. Consider a European call option on a non-dividend paying stock with exercise price 100 USD and expiration in one month. Interest rate is 1 percent and volatility of the stock is 0.4. Stock price 90 USD. Option price?? Use excel.

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