Please do on paper if possible! Problem 6A stock price is currently $35. It is known that at the end of 1 year it will be either $38.5or $31.5. The risk-free interest rate is 4% per year. What is the value of a 1-yearEuropean call option with a strike price of $33?1) draw the binomial tree for this option2) detail, or state, the replicating strategy3) find delta,4) compute the call option price.Attach your solution to this question Problem 7Carefully draw the payoff diagram, and calculate and indicate the total payoff in eachregion, (SK2) for the option's strategy that consists of thefollowing combination. Be as explicit at possible.Sell 1 (one) European put option with a strike price of K1 = $60Buy 1 (one) European put option with a strike price of K2 = $70%3D

Since you have asked multiple questions with multiple sub-parts, we will solve the first three…

Problem 6 A stock price is currently $35. It is known that at the end of 1 year it will be either $38.5 or $31.5. The risk-free interest rate is 4% per year. What is the value of a 1-year European call option with a strike price of $33?

Problem 6 A stock price is currently $35. It is known that at the end of 1 year it will be either $38.5 or $31.5. The risk-free interest rate is 4% per year. What is the value of a 1-year European call option with a strike price of $33?

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter18: Derivatives And Risk Management

Section18.A: Valuation Of Put Options

Problem 1P

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Question

Please do on paper if possible!

Problem 6
A stock price is currently $35. It is known that at the end of 1 year it will be either $38.5
or $31.5. The risk-free interest rate is 4% per year. What is the value of a 1-year
European call option with a strike price of $33?
1) draw the binomial tree for this option
2) detail, or state, the replicating strategy
3) find delta,
4) compute the call option price.
Attach your solution to this question

Problem 7
Carefully draw the payoff diagram, and calculate and indicate the total payoff in each
region, (S<K1, K1<S<K2 , and S>K2) for the option's strategy that consists of the
following combination. Be as explicit at possible.
Sell 1 (one) European put option with a strike price of K1 = $60
Buy 1 (one) European put option with a strike price of K2 = $70
%3D

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