5. Given: Today's stock price is 37. One month from now, the stock price will be either 35 or 40. If it is 35, then the following month the stock price will be either 31 or 37. If it is 40 one month from now, then the following month the price will be either37 or 45. The risk-free rate of interest is 1% per month. How much should one be willing to pay today for a call option on the stock with K = 35 and T = 2 months? Construct the binomial tree for a European call option. At each node, provide the callpremium (1.e., value) as well as \Delta and B.

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Answered: 5. Given: Today's stock price is 37.…

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 4MC

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2. Linkline's stock is trading at 55 today and you have determined the outlook for the next year is that the stock may increase by 14% or by 3% next year. The call option has a strike price of $56. The risk free rate is 2.25% and the option is for 1 year. What is the value of the call?
Assume a stock price is g120, and in the next year, it will either rise by 10 percent or fall by 20 percent. The risk-free interest rate is 6 percent. A call option on this stock has an exercise price of g130. What is the price of a call option that expires in one year? What is the chance that the stock price will rise?
Suppose that a stock price is currently 35 dollars, and it is known that four months from now, the price will be either 51 dollars or 29 dollars. Find the value of a European call option on the stock that expires four months from now, and has a strike price of 39 dollars. Assume that no arbitrage opportunities exist and a risk-free interest rate of 10 percent.Answer =dollars.
4. A stock is selling today for $100. The stock has an annual volatility of 45 percent and the annual risk-free interest rate is 12 percent. A 1 year European put option with an exercise price of $90 is available to an investor .a.Use Excel’s data table feature to construct a Two-Way Data Table to demonstrate the impact of the risk free rate of interest and the volatility on the price of this put option: i. Risk Free Rates of 5%, 7%, 9%, 12%, 15% and 18%. ii. Volatility of 35%, 45%, 55%, and 65%. b. How is the put option price impacted by varying the risk free rate of interest? c.How is the put option price impacted by varying the volatility?
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
4) A stock is currently trading at $45. A call option has strike price $44, 0=23%, and maturity of 6 months. Interest rates are 3% per year. 4a) What is the probability that the option will end up "in-the-money"? 4b) What is the delta of the option? 4c) What is the price of the option?
A stock is currently selling for $39. Over the next two periods, the stock will move up by a factor of 1.29 or move down by a factor of 0.53 each period. A call option with a strick price of $50 is available. If the risk-free rate of interest is 3.2 percent per period, what is the value of the call option?
Suppose that the current price of Roblox Corporation common stock is (RBLX) is $100. If the price of RBLX will be either $150 or $50 one year from now, what is the price of a call option with a strike price of $120 expiring one year from now? Assume that the current risk free rate is 1%. What is the risk neutral probability of the stock being $150 one year from now?
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 stock?b) What is the value today of a one-year European put option on Eagletron stock with a strike price of $20?c) Suppose the put options in parts a and b could either be exercised immediately, or in one year. What would their values be in this case?
13. You are considering buying a Call Option on XYZ Company stock. XYZ Company stock is currently at $75 per share, and you predict that it will be $50 or $100 in one year. Call Option will support you for XYZ Company stock in buying one year for $65. Based on this information, answer the following questions:A. What is the value of the Call Option if the risk-free interest rate is 3%?B. Give your analysis of the relationship between buying an option with the risk of the company.
Suppose that a stock price is currently 51 dollars, and it is known that one month from now, the price will be either 6 percent higher or 6 percent lower. Find the value of an American call option on the stock that expires one month from now, and has a strike price of 49 dollars. Assume that no arbitrage opportunities exist, and a risk free interest rate of 10 percent
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. a. Calculate the fair price for a 1 year European call option with an exercise price of $95. b. Calculate how much the current stock price would need to change for the purchaser of the call option to break even in one year. 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

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