A non-dividend-paying stock, currently priced at GH¢125 per share, can either go up by GH¢25 or down GH¢25 in a year. Consider a one-year European call option with a strike price of GH¢135. The continuously-compounded risk-free interest rate is 8%. Use a one-period binomial model to determine the current price of the call option.

A non-dividend-paying stock, currently priced at GH¢125 per share, can either go up by GH¢25 or down GH¢25 in a year. Consider a one-year European call option with a strike price of GH¢135. The continuously-compounded risk-free interest rate is 8%. Use a one-period binomial model to determine 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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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.)
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?
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