This is very simple question, pls solve it quickly One-Period Model - Option PricingConsider the following discrete time one-period market model. The interest rate is zero. The stock price is given by So = 10 and S1is a random variable taking two possible values SConsider a call option expires at time T= 8 and Si1 with strike price K = 9. If you are replicating one unit of this option with a replicating= 12.portfolio, how many units of the stock should you hold?.... ---- ---Select one:O a. -1/3O b. -1/4Oc 1/4O d. 3/4e. 1/3Of. 3

A replicating portfolio refers to the method of pricing options where the payoffs are considered as…

One-Period Model - Option Pricing 8 and S₁ = 12. Consider the following discrete time one-period market model. The interest rate is zero. The stock price is given by So 10 and S₁ is a random variable taking two possible values S₁ Consider a call option expires at time T portfolio, how many units of the stock should you hold? 1 with strike price K =9. If you are replicating one unit of this option with a replicating Select one: O a. -1/3 00 Ob. -1/4 O c. 1/4 O d. 3/4 e. 1/3 Of. 3

One-Period Model - Option Pricing 8 and S₁ = 12. Consider the following discrete time one-period market model. The interest rate is zero. The stock price is given by So 10 and S₁ is a random variable taking two possible values S₁ Consider a call option expires at time T portfolio, how many units of the stock should you hold? 1 with strike price K =9. If you are replicating one unit of this option with a replicating Select one: O a. -1/3 00 Ob. -1/4 O c. 1/4 O d. 3/4 e. 1/3 Of. 3

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 3MC: Consider Triple Play’s call option with a $25 strike price. The following table contains historical...

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In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). (1) What assumptions underlie the OPM? (2) Write out the three equations that constitute the model. (3) According to the OPM, what is the value of a call option with the following characteristics? Stock price = 27.00 Strike price = 25.00 Time to expiration = 6 months = 0.5 years Risk-free rate = 6.0% Stock return standard deviation = 0.49
Assume the following inputs for a call option: (1) current stock price is $25, (2) strike price is $28, (3) time to expiration is 4 months, (4) annualized risk-free rate is 5%, and (5) variance of stock return is 0.33. Use the Black-Scholes model to find the price for the call option. Do not round intermediate calculations. Round your answer to the nearest cent.
a) The cost of a portfolio consisting of a long position in a call option with strike price 50 and a short position in a call option with strike price 80 is zero (both call options are on the same stock and have the same maturity date). True or false? Explain. b) Carefully draw the payoff diagram of a portfolio consisting of a long position in two call options with exercise price ?, a short position in five call options with exercise price 2? and a long position in four call options with exercise price 3?. All options have the same maturity date and the same underlying stock. What reasons could a speculator have for holding such a portfolio (explain in detail)?
Use the Black-Scholes Model to find the price for a call option with the following inputs: (1) current stock price is $30, (2) strike price is $35, (3) time toexpiration is 4 months, (4) annualized risk-free rate is 5%, and (5) varianceof stock return is 0.25.
Assume that you have been given the following information on Purcell Industries' call options: Current stock price = $14 Strike price of option = $13 Time to maturity of option = 9 months Risk-free rate = 6% Variance of stock return = 0.16 d1 = 0.51704 N(d1) = 0.69744 d2 = 0.17063 N(d2) = 0.56774 According to the Black-Scholes option pricing model, what is the option's value?
You write a put option with X = 100 and buy a put with X = 110. The puts are on the same stock and have the same expiration date.a. Draw the payoff graph for this strategy.b. Draw the profit graph for this strategy.c. If the underlying stock has positive beta, does this portfolio have positive or negative beta?
Assume the following inputs for a call option: (1) current stock price is $23, (2) strike price is $28, (3) time to expiration is 5 months, (4) annualized risk-free rate is 5%, and (5) variance of stock return is 0.3. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Use the Black-Scholes model to find the price for the call option. Do not round intermediate calculations. Round your answer to the nearest cent.
Suppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation,= 0.5 a. What is correct of the call options using Black-Scholes model? * Look for N(d1) and N(d2) from the cumulative standard normal distribution table:
Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B). d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (??) =???????, where ??,?? are standard deviations of asset i and marketportfolio, ??? is the correlation between asset i and the market portfolio)Question 2. Foreign exchange marketsStatoil, the national…
Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B). d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (??) = ???????, where ??,?? are standard deviations of asset i and marketportfolio, ??? is the correlation between asset i and the market portfolio)
II. Suppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation, = 0.5 a. What is correct of the call options using Black-Scholes model? b. Compute the put options price using Black-Scholes model? c. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless.Note: Use the call and put options prices you have computed in the previous question (a) and (b) above.b. Name the options/stock strategy used to proof the put-call parity. c. What would be the extent of your profit in (a) depend on?
Put together a Black–Scholes option calculator in Excel to answer the following.(a) What is the call-option value withS0 = $45, K = $48, r = 6%, T = 15 months,and volatility = 40%?(b) What is the put-option value withS0 = $60, K = $65, r = 6%, T = 18 months,and volatility = 20%?(c) What is the put-option value withS0 = $38, K = $40, r = 6%, T = 3 months,and volatility = 60%?(d) What is the call-option value withS0 = $100, K = $95, r = 8%, T = 3 years,and volatility = 40%?