4) The premium of a call option with a strike price of $50 is equal to $5.5 and the premium of a call option with a strike price of $55 is equal to $4. The premium of a put option with a strike price of $50 is equal to $3.5. The risk-free rate of interest is 9%. In the absence of arbitrage opportunities, what should be the premium of a put option with a strike price of $55? All these options have a time to maturity of 6 months. (You are not allowed to use the put-call parity to solve this problem)

4) The premium of a call option with a strike price of $50 is equal to $5.5 and the premium of a call option with a strike price of $55 is equal to $4. The premium of a put option with a strike price of $50 is equal to $3.5. The risk-free rate of interest is 9%. In the absence of arbitrage opportunities, what should be the premium of a put option with a strike price of $55? All these options have a time to maturity of 6 months. (You are not allowed to use the put-call parity to solve this problem)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 1P

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Similar questions

A. An option is trading at $5.03. If it has a delta of -.56, what would the price of the option be if the underlying increases by $.75? What would the price of the option be if the underlying decreases by $.55? B. What type of option is this and how? C. With a delta of -.56, is this option ITM, ATM or OTM and how?
In a binomial model, a call option and a put option are both written on the same stock. The exercise price of the call option is 30 and the exercise price of the put option is 40. The call option’s payoffs are 0 and 5 and the put option’s payoffs are 20 and 5. The price of the call is 2.25 and the price of the put is 12.25. a. What is the riskless interest rate? Assume that the basic period is one year. b. What is the price of the stock today?
Suppose that you hold a call option on S&P 500 Index ETF with an exercise price of $450 and a put option on the same underlying with an exercise price of $430. Today the price of S&P 500 Index ETF is $460. Which of the following is correct? Choose only one: The payoffs of your call option and put option, respectively, today are $10 and $30. The payoffs of your call option and put option, respectively, today are $10 and –$30. The payoffs of your call option and put option, respectively, today are $10 and $0. The payoffs of your call option and put option, respectively, today are –$10 and $30. NONE of the above. Full explain this question text typing work only
A call option with an exercise price of $10 and 3 months to maturity has a price offer of $0.75. The stock price is $10.90 and the risk-free rate is 5%. Is this a boundary violation? If so, calculate the arbitrage profit available.
A call option on the stock of Bedrock Boulders has a market price of $7.The stock sells for $30 a share, and the option has a strike price of $25 ashare. What is the exercise value of the call option? What is the option’stime value?
A call option is selling at the strike price of $500, with a premium on the option of $50. If the investor wants to attain break even at the time maturity, what must be the share price on maturity? A. $450 B. $400 C. $550 D. $551
A one-year call option on a stock with strike price of $90 costs $6 and a one-year put option on the same stock with strike price of $90 costs $7. Suppose that a trader buys one call option and one put option. a. What is the breakeven stock price, above which the trader makes a profit? b. What is the breakeven stock price, below which the trader makes a profit?
Assume that K=61, St =65, t = 0.25 (i.e. time to expiry is 3 months), and the risk-free rate is 0.04. The current price of the put option is p = 4. If the price of the call option is 7.17, describe the arbitrage that would be possible, and calculate the profit that would result.
Calculate the implied volatility on a security given the following information: a call option on the security has a premium of 3.5p, the security itself is trading at 50p, the call has an exercise price of 51p and has 120 days to maturity, and the riskless interest rate is 12 per cent. Calculate the implied volatility on a security given the following information: a call option on the security has a premium of 3.5p, the security itself is trading at 50p, the call has an exercise price of 51p and has 120 days to maturity, and the riskless interest rate is 12 per cent.
A call option on Rosenstein Corporation stock has a market price of $7. Thestock sells for $31 a share, and the option has an exercise price of $25 a share.a. What is the exercise value of the call option?b. What is the premium on the option?
The exercise price on one of Flanagan Company’s call options is $15, itsexercise value is $22, and its time value is $5. What are the option’s marketvalue and the price of the stock?
Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,680, and the index is now at 1,720. What will happen when you exercise the option?