A stock price is currently $50. It is known that at the end of the 6 month it will be either $55 or $65. The risk free interest rate is 10%pa with continuous compounding what is the value of 6 month European put option with strike price $50 ?

A stock price is currently $50. It is known that at the end of the 6 month it will be either $55 or $65. The risk free interest rate is 10%pa with continuous compounding what is the value of 6 month European put option with strike price $50 ?

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

See similar textbooks

Related questions

Q: A call option has a strike price of 55, expires in 6 months, and has a price of $5.04. If the…

A: The question is based on the concept of Derivatives

Q: A put option and a call option written on the same stock will expire in three months. They both have…

A: The question is related to Put-call Parity Theorem. In the case of Put and Call both on the same…

Q: The current price of a stock is $15. In 6 months, the price will be either $18or $13. The annual…

A: Number of shares is calculated using the ratio of option range to stock range. Stock range is the…

Q: The current price of a stock is $30. Over each of the next two three-month periods it is expected to…

A: Current price of a stock=$30 Over each of the next two three-month periods it is expected to go up…

Q: ut option and a call option with an exercise price of $115 and three months to expiration sell for…

A: The given problem can be solved using put call parity.

Q: The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $50 per share…

A: a) Formula:

Q: Use the Black-Scholes model to find the value for a European put option that has an exercise price…

A: ST (Strike Price)= $62r (Risk Free Interest Rate)=0.05t (Time)=4 months= 4/12= 0.333yearsSP (Current…

Q: A stock price is currently $60. Over each of the next two six-month periods, it is expected to go up…

A: A binomial tree is a graphical depiction of the potential inherent values of an option at various…

Q: A stock price is currently $50. It is known that at the end of two months it will be either $53 or…

A: The following information has been provided in the question: Price of stock =$50 Risk free interest…

Q: A stock is currently selling for S0 = $200: Over each of the next 6 months it is expected to grow by…

A: Here; One period is 6 months Time period is 1 year Expected upside movement is 10% Expected…

Q: The current stock price for XYZ ltd is sh. 85. A European call option with an exercise price of sh.…

A: Standard deviation = σT = σ160 Standard Deviation = σ12.65 σ=44512.65 = 2.93% T = 160 r = 5.18% S0…

Q: A European call option on shares has 3 months to expiry. The exercise price of the option is $2.50,…

A: Black Scholes Model is used to value the option derivative such as call option and put option: By…

Q: Suppose the stock price is $20 today. In the next six months it will either fall by 50 percent or…

A: Let S denote the share price, r risk free rate, up-factor (u) = 1.50 and down factor (d) = 0.50…

Q: Consider a 2-year EUROPEAN PUT with a strike price of $65 on a stock whose current stock price is…

A: Strike Price = $65 Stock price = $60 Upper limit = 20% Down limit = 20% Risk free rate = 5%

Q: A stock price is currently $30. It is known that at the end of two months it will be either $33 or…

A: The question is based on calculation value of European put option by by use of binomial pricing…

Q: A stock price is currently trading at $50. Over each of the next 2 ree-month periods it is expected…

A: Asset price $50.00 Strike price $51.00 Time 6 months Expected to go down 5% Expected to go…

Q: A stock has a current price of $116. An option on this stock that expires in six months has an…

A: Here, Current Price is $116 Strike Price is $115 Risk Free Rate is 5% Volatility is 30% Time to…

Q: A stock is selling today for $30. The stock has an annual volatility of 70 percent and the annual…

A: Calculation of Time Value of European Call Option:The time value of European call option is…

Q: A stock price is currently $200. Over each of the next two six-month periods it is expected to go up…

Q: The current price of a non-dividend paying stock is $100. Every three months, it is expected to go…

A: "Hi, Thanks for the Question. since you asked multiple question, we will answer the first question…

Q: and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%,…

A: in this we have to use binomial distribution formula for calculating the price of option.

Q: Stock Z is currently selling for $120. You believe that, one year from now, Stock Z will sell for…

A: The question can be solved as follows:

Q: A stock price is currently $30. It is known that at the end of one year, it will be either $36 and…

A: Given: Stock price S0 = $30 New Price S+ = 36 New Price S - = 24 Exercise Price "X" = $32 Risk free…

Q: A stock is currently $100. Over each of the next two six month periods it is annim with continuous…

A: The following information has been provided in the question: u=1.10 d=0.90 t=0.5 r=0.08

Q: stock price is currently $30. It is known that at the end of one year, it will be either $36 and…

A: Binomial tree is very useful in calculating the call option price of European call.

Q: A stock is selling today for $110. The stock has an annual volatility of 64 percent and the annual…

A: Hi there, Thanks for posting the question. As per our Q&A guidelines, we should answer the first…

Q: A stock price is currently $100. Over each of the next two three-month periods it is expected to go…

A: The question is to calculate value of European call by binomial pricing model. Price of call option…

Q: A stock price is currently $43 . It is known that at the end of one month it will be either $45 or…

A: GIVEN, s0=$43SU=$45SD=$41rf=7%k=$42

Q: A stock price is currently $60. You predict that at the end of 6 months stock price will increase or…

A: A pricing model has two outcomes: a move up or a move down. The fundamental advantage of a binomial…

Q: You purchase a call option for $10.74 with 24 months to expiration on a stock you expect to increase…

A: We can find the price of the call option using a Black Scholes Formula which is as follows:C =…

Q: A stock price with an expected return of 26% and a volatility of 30% . The current price is $48 .…

A: Probability of European call option exercised Upper value =$48+30%*48=$62.4 Lower value…

Q: A stock price is currently $80. It is known that at the end of four months it will be either $75 or…

A: Options are derivatives, whose values are derived from the value of an underlying asset. There are…

Q: The current price of a stock is $33, and the annual risk-free rate is 6%. Acall option with a strike…

A: Given information: Current stock price is $33 Annual risk free rate is 6% Call option strike price…

Q: A stock price is currently $51. It is assumed that at the end of six months it will be either $30 or…

A: Call option gives the right to but the underlying at a specified price. Expected payoff= MAX(0,…

Q: The strike price of a European put option is $30, the current price of the underlying stock is $24,…

A: Let (S) denote share price, (P) payoff, (u) up-factor and (d) down-factor. The possible value of…

Q: A stock price is currently $80. Over each of the next two six-month periods, it is expected to go up…

A: The Binomial Option pricing model is a generalized mathematical model, based on probability and…

Q: Consider a European call option on the S&P 500 that is two months from maturity. The current value…

A: Current Value of index = 930 Exercise Price = 900 Risk Free Rate = 8% Volatility = 20% Dividend…

Q: Suppose that a stock price is currently selling at $170. Over each of the next two 3-month periods…

A: 2 step binomial model is used to calculate the option prices.

Q: A two-year European call option is written on a stock whose current price is $20. The stock will pay…

A: Hi! Thank you for the question, As per the honor code, we are allowed to answer one question at a…

Q: The current price of a non-dividend paying stock is $60. Use a two-step tree to value an American…

A: American Put option gives right to sell the underlying at any point of time till expiry, at a given…

Q: A stock price is currently $100. Over each of the next two six-month periods it is expected to go up…

A: First of all we will have to establish the probability of Up move, for that we will use the…

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1 Introduction

VIEW

Step 2 Calculations

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

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?
A stock price is currently $50. Over each of the next two 3-month periods it is expected to go up by 6% or down by 5%. The risk-free rate is 5% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $51?
A stock price is currently $30. It is known that at the end of two months it will be either $33 or $27. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a two-month European put option with a strike price of $31?
A stock price is currently $100. Over each of the next two three-month periods it is expected to go up by 8% or down by 7%. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $95?
The price of a stock is currently $20. Over each of the next two three-month periods, the stock can go up by 10% or down by 10%. The risk free interest rate is 12% per annum with continuous compounding. (a) What is the current value of a six-month European put option with a strike price of $22? (b) What is the current value of a six-month American put option with a strike price of $22?
A stock price is currently $45. Over each of the next two three-month periods it is expected to go up by 15% or down by 15%. The risk-free interest rate is 8% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $42 today? What is the value of a six-month American put option with a strike price of $42 today?
A stock price is currently $43 . It is known that at the end of one month it will be either $45 or $41 . The risk-free interest rate is 7% per annum with continuous compounding. What is the value of a one-month European call option with a strike price of $42 ?
A stock price is currently $200. Over each of the next two six-month periods it is expected to go up by 20% or down by 20%. The risk-free interest rate is 5% per annum with continuous compounding.You are required to use two-step Binomial model to find the value of a one-year European put option with a strike price of $200.
A stock price is currently $60. You predict that at the end of 6 months stock price will increase or decrease by 20%. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a 6-month European put option with a strike price of $60?
A stock price is currently $50. Over each of the next two three-month periods it is expected to go up by 6% or down by 5%. The risk-free rate is 5% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $51? (Round your answer to the 4 decimal places) Consider the setting of the previous problem but now find the value of a six-month European put option with a strike price of $51. (Round your answer to the 4 decimal places)
A stock price is currently $100. Over each of the next two three-month periods it is expected to increase by 10% or fall by 10%. Consider a six-month European put option with a strike price of $95. The risk-free interest rate is 8% per annum, compounded continuously. What is the value of the option if it is American?