8. Consider a European call option on a stock. The exercise price is $60.5 dollars. The time until expiration is 2 years. The annual effective risk-free interest rate is 10%. The current stock price is $60. The stock does not pay dividends during next two years. A European put option on the stock with an exercise price of $60.5 and 2 years until expiration is priced at $5. What is the current price of the call option?

8. Consider a European call option on a stock. The exercise price is $60.5 dollars. The time until expiration is 2 years. The annual effective risk-free interest rate is 10%. The current stock price is $60. The stock does not pay dividends during next two years. A European put option on the stock with an exercise price of $60.5 and 2 years until expiration is priced at $5. What is the current price of the call option?

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 4P: Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call...

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Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of 21 and that expires in 1 year. (Hint: Use daily compounding.)
. A European put option written on a non-dividend paying stock that is currently worth ₺100 in the stockmarket has a strike price of ₺100 and exactly five months left until its expiration date. If the continuouslycompounded annual risk-free rate is observed as 20% per year across all maturities and the put option iscurrently priced at ₺3.20 in the option market, what should be the theoretical price of a European call optionwritten on the same stock that has the same strike price and expiration date as the put option described?
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.
The price of a European call option on a stock with a strike price of $50.9 is $5.6. The stock price is $40.1, the continuously compounded risk-free rate (all maturities) is 5.2% and the time to maturity is one year. A dividend of $0.6 is expected in six months. What is the price of a one-year European put option on the stock with a strike price equal to the call's strike price? Please state the formula and steps, thanks
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. a) What is the price of the option if it is a European put?
A 4-month European call option on a stock (with dividend) is currently selling for RM5. The price of the stock is RM64 and the strike price is RM60. The risk-free interest rate is 12% p.a. A dividend of RM0.80 is expected one month from now. Is there any arbitrage opportunities? Show your working. How much is the profit/loss if at maturity the price of the stock is higher than the strike price? How much is the profit/loss if at maturity the price of the stock is lower than the strike price?
The price of a European call option on a stock with a strike price of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to maturity is one year. A dividend of $1 is expected in six months. What is the price of a one-year European put option on the stock with a strike price of $50? $6.97 $8.97 $1.12 $3.06
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?
What is the price of a European put option on a non-dividend paying stock when thestock price is K69, the strike price is K70, the risk-free rate is 5% per annum, thevolatility is 35% per annum, and the time to maturity is 6 months?
Suppose that a stock price is currently 61 dollars, and it is known that at the end of each of the next two six-month periods, the price will be either 18 percent higher or 18 percent lower than at the beginning of the period. Find the value of a European put option on the stock that expires a year from now, and has a strike price of 64 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 10 percent.