A stock is selling today for $110. The stock has an annual volatility of 64 percent and the annualrisk-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 ofthe 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 GoalSeek or Solver).f.Calculate the level of volatility that would make a $95 put option sell for $8. (Use GoalSeek or Solver). Please show work using excel

Question
Asked Nov 28, 2019
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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
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Expert Answer

Step 1

Hi there, Thanks for posting the question. But as per Q&A guidelines, we should answer the first quesiton, when multiple sub-parts given under single question. Hence,  I have answered the Part C below. Please repost the question separately.

Step 2

Calculate the value of euro...

В
A
1 Stock price
2 Annual volatility (o)
3 Risk free rate
4 Exercise price
5 Period to Exercise
$
110
64%
7%
95
1
6
7 Present value of exercise price 88.57741289
8 otx0.5
0.32
9 dl
0.658442928
10 d2
11 Delta N(dl)
12 N(d2) PV(Ex)
0.338442928
0.744873221
56.0239103
13
14 Fair price of european call
15 Fair price of european Put
25.91
4.49
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В A 1 Stock price 2 Annual volatility (o) 3 Risk free rate 4 Exercise price 5 Period to Exercise $ 110 64% 7% 95 1 6 7 Present value of exercise price 88.57741289 8 otx0.5 0.32 9 dl 0.658442928 10 d2 11 Delta N(dl) 12 N(d2) PV(Ex) 0.338442928 0.744873221 56.0239103 13 14 Fair price of european call 15 Fair price of european Put 25.91 4.49

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