Q.3Determine the risk-neutral value for a European put option (for a FLB (First Local Bank) share) that expires in eight months. The strike price is R500 and the current price is R650. The interest rate is 11%, and the volatility of the security is 0.026
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- Suppose a firm offers an equity-linked security. The face value is $1 million and its payoff is based on any appreciation in an equity index currently at 855.50. It has determined that of the $1 million raised, it can structure the option component so that its value is $135,000. Currently an at-the- money call option is worth $125. What percentage of the gain in the index can it offer? A. 92% B. 23% C. 100% D. 50%b) Suppose you are given the following information: Current market price of a share= R200 000 Option’s exercise price = R300 000 Time until the option expires= 5 yrs Risk free rate =4% Standard deviation of the returns on the share= 0.35 Required: i. Calculate d1 and d2 ii. Suppose N(d1) =0.7517 and N(d2) =0.4602; calculate the price of the call option on the shareThe stock price of Top Gloves Bhd today is RM3.00. The call option on this stock with a strike price of RM2.00 and a 60 days maturity has an option premium of RM1.50. The put option with a strike price of RM2.00 and 60 days expiry possess a premium of RM1.20. The risk-free rate per annum is 5%. Required: (a) Prove that there is mispricing. (b) Suggest a suitable arbitrage strategy for this mispricing.
- H2. Using the Black-Scholes model (BSOPM), compute the standard deviation that is implied by the following call option data as: the time to the option's maturity is 0.25 years, the price of the underlying option asset is RM30, the continuously compounded risk-free interest rate is 0.12. the exercise or striking price is RM30, and the cost or premium of the call is RM1.90.3.2 Find the current price of a one-year, R110-strike American put option on a non- dividend-paying stock whose current price is S(0) = 100. Assume that the continuously compounded interest rate equals r = 0.06. Use a two-period Binomial tree with u = 1.23, and d = 0.86 to calculate the price VP(0) of the put option.Q- You observe a put option on ImpoExpo's stock, with an exercise price of $56 and a time to maturity of one year, trading at $1.56. Can you construct a portfolio where you make a risk-free profit in a perfect market? Demonstrate your portfolio's net payoff when the stock price rises or falls
- 1. Assume you buy a March RM1625 FBM-KLCI call option for RM25 and hold until expiry. What will be your maximum loss in ringgit? 2. Suppose you bought stock XYZ December RM8 put options for 40 sen. What is the premium?financial risk management 1. The KLSE CI is at 1250. The value of your portfolio is RM2.5million. If you wish to hedge against a marketdownturn as completely as possible, do you buy or sell futures contract? 2. The buyer of the option is not obligated to complete the deal and will do so only if changes in price make it profitable to do so. ( True/ False)D3) Finance What is the probability that the put option is OTM at maturity if: the Stock is S = $195.00, no dividend is paid, the risk-free rate is r = 2.40%, the strike price is K = 209.00, the maturity is T = 23 months and the parameters are d1 = 0.2328 and d2 = -0.3175?
- A. Consider a stock worth K12.50 that can go up or down by 15% per period. Assume aperiod process of one. The risk-free rate is 10%. Find the value of the call optiontoday, with the strike price of K11.50. B. What is the price of a European put option on a non-dividend paying stock when thestock price is K69, the strike price is K70, the risk-free rate is 5% per annum, thevolatility is 35% per annum, and the time to maturity is 6 months?Suppose a stock is currently (time t = 0) worth 100. Further, suppose the one year annually compounded interest rate is 2%, and the two year annually compounded rate is 3%. Find the following:a) The forward price for a forward contract on the stock with maturity year T1 = 1. b) The forward price for a forward contract on the stock with maturity year T2 = 2.c) The forward price for a forward contract with maturity T1 = 1 on a ZCB with maturity T2 = 2.d) The forward price for a forward contract with maturity T1 = 1 on a forward contract on the stock with maturity T2 = 2 and delivery price K = 101.Determine the risk-neutral value for a European put option (for a FLB (First Local Bank) share) that expires in eight months. The strike price is R500 and the current price is R650. The interest rate is 11%, and the volatility of the security is 0.026. *DO NOT USE EXCEL OR ANY OTHER PLATFORM, SHOW STEP-BY-STEP CALCULATION