A company stock whose current price is $192 is expected to either increase to $242 or decrease to $185 over the next nine months with equal probability. Compute the price of a nine-month at-the-money European put option. Use the fact that the riskless rate is 3.3% per year with continuous compounding. Express your answer with two decimals.

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 7P
icon
Related questions
Question

A company stock whose current price is $192 is expected to either increase to $242 or decrease to $185 over the next nine months with equal probability. Compute the price of a nine-month at-the-money European put option. Use the fact that the riskless rate is 3.3% per year with continuous compounding. Express your answer with two decimals.

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT