price the European and American binary calls
Q: What is the required annual rate of return on the cocoa contract ? You plan to hold the contract for…
A: Solution:- Given in Question- Risk Free Return = 4% Risk Premium = 6% Beta = -0.291 A. To Calculate…
Q: Consider the following investment in CURRENT DOLLARS The trem (minimum acceptable rate of return), m…
A: Real rate is the rate which excludes the impact of inflation in the economy, while nominal rates are…
Q: Suppose a European put has a strike price of $50 on July 5. The put expires in 30 days. Suppose the…
A: A Put Option: A put option gives its holder the right, but not the obligation to sell the underlying…
Q: Suppose, spot Rate is $1 = Tk. 79.20 - 80.40 Calculate swap points for 3 months, when interest…
A: Swap Points: It is difference in interest rates in between transaction currencies.
Q: An asset has a current price of ₱80.00 and it has an exercise price of ₱95 in 6 months. In your…
A: Here, Current Price is ₱80.00 Exercise Price is ₱95 Standard Deviation is 0.45 Reference Rate or…
Q: given S0=€50, at the end of second months, the asset can be €52 or €48. With risk free interest rate…
A: To value American options, the binomial option pricing model employs an iterative technique that…
Q: has a $1,000 par value, 10 years to maturity, and an 8% annual coupon and sells for $980. a. What is…
A: Par value =$1000 Time =10 years Coupon rate =10% So, coupon payment =0.1*1000 =$100 Present values…
Q: You note the following yield curve in The Wall Street Journal. According to the unbiased…
A: In this question, we have to solve this question on the basis unbiased expectations theory.
Q: A farmer shorts cocoa futures for 500 tons at RM6,000 per ton. The exchange requires him to post…
A: A margin call occurs when the value of the investor's margin account drops and fails to meet the…
Q: How to pricing the future contract over times. For example the spot price at t=0 is $1050, risk free…
A: Here, Spot Price at t=0 is $1,050 Risk Free Rate is 7% Dividend Yield is 5% Storage Cost is 1% Time…
Q: Assume the spot Swiss franc is $0.7085 and the six-month forward rate is $0.7120. What is the Value…
A: given that: spot rate=$0.7085 forward rate=$0.7120 then the spot rate =$14144.28 forward…
Q: You took a long position on EUR when the prevailing market rate was EUR/USD: 1.3223-1.3227. After…
A: Since we have taken long position in EUR, we need to sell EUR to square off the position. The…
Q: Work out the value of European Call on a risky asset A, currently selling at $600. The European Call…
A: We can calculate this using BSOPM. The formulas used are as below: d1 = lnS0X + (r + σ22)TσT=…
Q: ppose you buy a 100-strike call at a premium of $19.46, sell a 120-strike call at a premium of…
A: Put call parity Put call parity gives the relationship between put and call option that have the…
Q: A commercial bill with a face value of P50 000 has a current price of P49291. This bill is trading…
A: Commercial bills are form of short term debt issued by the business, on which interest has to be…
Q: Suppose that a 6-month European call option, with a strike price of K = $85, has dividend with rate…
A: Strike price K is $85 Call Option Premium "C" is $2.75 Dividend yield "q" is 10% per annum Future…
Q: Suppose the real risk-free rate is 4.25% and the future rate of inflation is expected to be constant…
A: Rate of return is the return rate which an investor wants to get it from the investments made by him…
Q: What would be the face value, in terms of its price and yield to maturity, of a U.S. T-bill on the…
A:
Q: Suppose you are attempting to value a one-year maturity option on d) if your binomial model is set…
A: appropriate value for down factor = exp(sd*square root of T)
Q: A 91-day Treasury Bill (T-Bill) with a face value of £72,000,000 is currently trading at a discount…
A: " Hi, Thanks for the Question. Since you asked multiple sub parts question, we will answer the first…
Q: Suppose a European call option on a sack of corn with a strike price of $50 and a maturity of…
A: Strike price (X) = $50 Spot price (S) = $53 Call price (C) = $5 Put price = P r = 2% t = 1 month =…
Q: The yield on a one-year Treasury security is 5.6100%, and the two-year Treasury security has a…
A: Pure expectations theory predics short term interest rate using long term interest rates.
Q: The prices of a certain security follow a geometric Brownian motion with parameters mu=.12 and…
A: Let's pull together all the variables of Black Scholes Model:S = Current stock price = 40K = Strike…
Q: Consider a contract that caps the LIBOR interest rate on $10,000 at 8% per annum (with quarterly…
A: The London Interbank Offer Rate, written as LIBOR, is the global reference rate for unsecured…
Q: Consider the non-dividend paying asset with a current value of 100 kr that is described by the…
A: Option holder will purchase the stock, if stock spot price greater than strike price. Or else option…
Q: Calculates the price of a 60-day PUT option, on the USD/MXN that presents a spot of 19.9246 MXN per…
A: Spot rate is 19.9246 MXN per USD Put Strike is 20.000 MXN per USD Risk free rate is 4% per year in…
Q: A commercial bill with a face value of P50 000 has a current price of P49291. This bill is trading…
A: Time to maturity means the time in which the bill will be matured and the maturity amount will be…
Q: for delivery in December is $1.3890 per pound. Each contract is for 37,500 pounds. Initial margin is…
A: when margin falls below than margin calls can be calculated.
Q: What is the risk-neutral valuation of a six-month Euro- pean put option to sell a security for a…
A: The Black Scholes model is the mathematical model used for the risk-neutral valuation of options.
Q: Consider a two-period binomial tree model with u = 1.1 and d = 0.90. Suppose the current price of…
A: The binomial option pricing is used to find the value of the options that have multiple values over…
Q: You have the following Yield to maturities on Zero-coupon T-bills for 1000 par: Year YTM 1…
A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…
Q: Consider a one-step binomial model over a 3-month period. The current asset price is $100. In 3…
A: Introduction Binomial Model To value American options, the binomial option pricing model uses an…
Q: Price a 3 month call using a one step binomial tree where the risk free rate is 1.00%. Where S0 is…
A: An option contract gives the right to its buyer to sell or buy the assets or securities at today’s…
Q: Assume oat forward prices over the next 3 years are $2.30, $2.40, and $2.33, respectively. Effective…
A: We can calculate the 3-year swap price by using the interest rates and forward price for the 3 years…
Q: Assume the spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950. What is the…
A: Financial options are the instruments that are traded in the financial markets as derivatives and…
Q: Consider the option on currency HKD against the USD: Current spot rate is HKD7.50 for 1 USD: ·…
A: Hi there, thanks for posting the questions. But as per our Q&A guidelines, we must answer the…
Q: The futures price of an asset is currently 80 and the risk-free rate is 4%. A six-month put on the…
A: given information risk free rate = 4% strike price = 85 currently worth 6.5
Q: Assume the spot Swiss franc is $0.7030 and the six-month forward rate is $0.7010. What is the Value…
A: Here, Spot Price is $0.7030 Six Month Forward rate is $0.7010 Strike Price is $0.6830 Risk Free Rate…
Q: A 3-month European call on a futures has a strike price of $100. The futures price is $100 and the…
A: Strike Price (S)= $100 Future price (K)= $100 Volatility= 20% Risk-free rate (r)= 2% per annum with…
Q: Assume that K=61, St =65, t = 0.25 (i.e. time to expiry is 3 months), and the risk-free rate is…
A: Strike price K is 61 Spot Price S is 65 Time t is 0.25 Risk free rate is 4% Current price of Put…
Q: Let the current spot rate be 1.21 Sf/$. Let the exercise price be 1.20 $/€. Let the volatility of…
A: Many Thanks for the Question. Bartleby's Guideline: “Since you have posted a question with multiple…
Q: Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the…
A: Current long term rate can be computed using geometric mean of spot rate and 1 year T bill rates…
Q: A commercial bill with a face value of P50 000 has a current price of P49291. This bill is trading…
A: A commercial bill with a face value of P50 000 has a current price of P49291. This bill is trading…
Q: Assume that Epping Co. expects to receive S$500,000 in one year. Epping created a probability…
A: Given information : Expected value to be received = $500,000 Future spot rates = $.68, $.62, $61…
Assume that the strike price is $100. The time to maturity T is 2 months. Risk free rate is 0.1, U=1.21, D=0.82 price the European and American binary calls if the spot price differs from the strike price by 0.01 using the 2 step binomial tree. Use monthly compounding.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
- Consider a one-period binomial model in which the underlying is at 65 Euros, and can go up 30% or down 22% each period. The risk-free rate is 8%. European Put Option with Execution Price of 70 Euros. Assume that the put is selling for 9 Euros. Demonstrate how to execute an arbitrage transaction and calculate the rate of return. Use 10000 puts.Assume the spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950. What is the minimum price that a six-month American call option with a striking price of $0.6800 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.5 percent. (Do not round intermediate calculations.)Assume the spot Swiss franc is $0.7030 and the six-month forward rate is $0.7010. What is the Value of a six-month call option with a strike price of $0.6830 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the binomial option-pricing model to value the call option. (Do not round intermediate calculations. Round your answer to 2 decimal places. Enter your answer in ce
- Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 2.00% per year. What is the real risk-free rate of return, r*? The cross-product term should be considered , i.e., if averaging is required, use the geometric average. (Round your final answer to 2 decimal places.)Consider a one-period binomial model in which the underlying is at 65 Euros, and can go up 30% or down 22% each period. The risk-free rate is 8%. Determine the price of a European put option with exercise price of 70. Assume that the put is selling for 9 Euros. Demonstrate how to execute an arbitrage transaction and calculate the rate of return. Use 10000 puts.Consider a two-period binomial tree model with u = 1.05 and d = 0.90. Suppose the current price of the stock is $100 and the nominal interest rate is 2%. What is the value of an American put with a strike price of $95 that will expire in 146 days?
- Assume oat forward prices over the next 3 years are $2.30, $2.40, and $2.33, respectively. Effective annual interest rates over the same period are 5.5%, 5.8%, and 6.1%. What is the 3-year swap price if the delivery in year 1 is 100,000 bushels, the delivery in year 2 is 125,000 bushels and the delivery in year 3 is 175,000 bushels?Assume the spot Swiss franc is $0.7085 and the six-month forward rate is $0.7120. What is the Value of a six-month call and a put option with a strike price of $0.6885 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the European option-pricing models to value the call and put option.Suppose a European call option on a sack of corn with a strike price of $50 and a maturity of one-month, trades for $5. What is the price of the put premium with identical strike price and time until expiration, if the one-month risk-free rate is 2% and the spot price of the underlying asset is $53?
- Suppose a European put has a strike price of $50 on July 5. The put expires in 30 days. Suppose the yield of T-bill maturing in 29 days is 4.6% and the yield of T-bill maturing in 36 days is 10.6%. What is the maximum value of the European put? Please type your answer in the box below and round it up to two decimals.Assume the spot Swiss franc is $0.7015 and the six-month forward rate is $0.6980. What is the Value of a six-month call and a put option with a strike price of $0.6815 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the European option-pricing models to value the call and put option. This problem can be solved using the FXOPM.xls spreadsheet. (Do not round intermediate calculations. Round your answers to 2 decimal places.)Assume that Epping Co. expects to receive S$500,000 in one year. Epping created a probability distribution for the future spot rate in one year as follows: Future Spot Rate $.68 Probability 20% 62 50 30 61 Assume that one-year put options on Singapore dollars premium of $.04 per unit. One-year call options on Singapore dollars are available with an exercise price of S.60 and a premium of $.03 per unit. a are available, with an exercise price of $0.63 and Use the appropriate options hedge to determine whether the firm would exercise the option using each of the three different spot rates i.e. what would the firm do if each spot rate existed at the time it is considering exercising the option (assume the option is about to expire). Then, show the total amount of receivables (in US dollars) based on the appropriate strategy that would be implemented for each of the three spot rates. Indicate whether the amount would be a maximum or a minimum or neither.
