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A stock has a beginning market value of $70. It can either increase in value 30% each year or decrease in value by 30%. A 3-year European call option written on the stock has an exercise price of $70. The risk-free rate of return is 5% per year. What is the current equilibrium price of the call option if you maintain a riskless portfolio by readjusting your relative positions in stocks and puts t the end of each year? Please operate with 2 decimals, show all work, and choose the closest answer. MAKE SURE TO WORKOUT CLEARLY THE STEPS TO AVOID S0% PENALTY.

A stock has a beginning market value of $70. It can either increase in value 30% each year or decrease in value by 30%. A 3-year European call option written on the stock has an exercise price of $70. The risk-free rate of return is 5% per year. What is the current equilibrium price of the call option if you maintain a riskless portfolio by readjusting your relative positions in stocks and puts t the end of each year? Please operate with 2 decimals, show all work, and choose the closest answer. MAKE SURE TO WORKOUT CLEARLY THE STEPS TO AVOID S0% PENALTY.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A stock has a beginning market value of S70. It can either increase in value 30% each year or decrease in value by 30%. A 3-year European call option written on the stock has an exercise price of $70. The risk-free rate of retum is 5% per year. What is the current equilibrium price of the call option if you maintain a riskless portfolio by readjusting your relative positions in stocks and puts t the end of cach year? Please operate with 2 decimals, show all work, and choose the closest answer. MAKE SURE TO WORKOUT CLEARLY THE STEPS TO AVOID 50% PENALTY. 30.2 15.3 O 25.2 19.1
Transcribed Image Text:A stock has a beginning market value of S70. It can either increase in value 30% each year or decrease in value by 30%. A 3-year European call option written on the stock has an exercise price of $70. The risk-free rate of retum is 5% per year. What is the current equilibrium price of the call option if you maintain a riskless portfolio by readjusting your relative positions in stocks and puts t the end of cach year? Please operate with 2 decimals, show all work, and choose the closest answer. MAKE SURE TO WORKOUT CLEARLY THE STEPS TO AVOID 50% PENALTY. 30.2 15.3 O 25.2 19.1
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