For all problems where a risk-free rate or a dividend yield is given, assume that the interest rate and the dividend yield are annual and continuously compounded rates. The current price of a non-dividend-paying stock is $150. The volatility of the stock price is 20%, and the risk-free interest rate is 3% for all maturities. Using the Black-Scholes pricing model, estimate today’s probabilities that the stock price in one year will be (a) less than or equal to $120, (b) between $120 and $160, and (c) greater than $160.

For all problems where a risk-free rate or a dividend yield is given, assume that the interest rate and the dividend yield are annual and continuously compounded rates. The current price of a non-dividend-paying stock is $150. The volatility of the stock price is 20%, and the risk-free interest rate is 3% for all maturities. Using the Black-Scholes pricing model, estimate today’s probabilities that the stock price in one year will be (a) less than or equal to $120, (b) between $120 and $160, and (c) greater than $160.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section11.3: Financial Models

Problem 21P: Amanda has 30 years to save for her retirement. At the beginning of each year, she puts 5000 into...

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