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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. a. Calculate the fair price for a 1-year European call option with an exercise price of $95. b. Calculate how much the current stock price would need to change for the purchaser of the call option to break even in one year. c. Calculate the fair price for a 1 year European put option with an exercise price of $95

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. a. Calculate the fair price for a 1-year European call option with an exercise price of $95. b. Calculate how much the current stock price would need to change for the purchaser of the call option to break even in one year. c. Calculate the fair price for a 1 year European put option with an exercise price of $95

Intermediate Financial Management (MindTap Course List)
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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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.
a. Calculate the fair price for a 1-year European call option with an exercise price of $95.
b. Calculate how much the current stock price would need to change for the purchaser of
the call option to break even in one year.
c. Calculate the fair price for a 1 year European put option with an exercise price of $95

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