A stock price is currently $65. After each 6 month, the price is expected to go up by or down with the volatility of 25%. The risk-free rate interest rate is 7% per annum with continuous compounding. Questions What will be the risk-neutral probability of an up move - p? What is the value of a 6-month European Call option with a strike price of $65

A stock price is currently $65. After each 6 month, the price is expected to go up by or down with the volatility of 25%. The risk-free rate interest rate is 7% per annum with continuous compounding. Questions What will be the risk-neutral probability of an up move - p? What is the value of a 6-month European Call option with a strike price of $65

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

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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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