Sam wants to trade options and is looking at some on Honeywell's stock. Specifically, he sees a European call on Honeywell with a strike price of $100.00 that expires in 87 days. Honeywell's current stock price is $121.43, and it has a standard deviation of 42% per year. The risk-free interest rate is 6.03% per year. They pay no dividends. However, he is interested in buying a put not a call. Estimate the value of a put with the same strike price and expiration date as the call just described. Use a 365-day year. (You must show me how you do this without an Excel-based option pricing model. That is, you must show your work with the formulas and Z-Tables. The value will likely be different than if you just plug into an Excel-based BSOPM).

Sam wants to trade options and is looking at some on Honeywell's stock. Specifically, he sees a European call on Honeywell with a strike price of $100.00 that expires in 87 days. Honeywell's current stock price is $121.43, and it has a standard deviation of 42% per year. The risk-free interest rate is 6.03% per year. They pay no dividends. However, he is interested in buying a put not a call. Estimate the value of a put with the same strike price and expiration date as the call just described. Use a 365-day year. (You must show me how you do this without an Excel-based option pricing model. That is, you must show your work with the formulas and Z-Tables. The value will likely be different than if you just plug into an Excel-based BSOPM).

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Rebecca is interested in purchasing an European call on a hot new stock, Up, Inc. The call has a strike price of $100 and expires in 90 days . The current price of Up stock is $120, and the stock has a standard deviation of 40% per year. The risk-free interest rate is 6.18% per year. a). Using the Black - Scholes formula , compute the price of the call b). Use put-call parity to compute the price of the put with the same strike and expiration date
Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call has a strike price of $99.00 and expires in 85 days. The current price of Up stock is $122.83, and the stock has a standard deviation of 35% per year. The risk-free interest rate is 6.95% per year. Up stock pays no dividends. Use a 365-day year. a. Using the Black-Scholes formula, compute the price of the call. b. Use put-call parity to compute the price of the put with the same strike and expiration date. (Note:Make sure to round all intermediate calculations to at least five decimal places.)
You work on a proprietary trading desk of a large investment bank, and you have been asked for a quote on the sale of a call option with a strike price of $53 and one year of expiration. The call option would be written on a stock that does not pay a dividend. From your analysis, you expect that the stock will either increase to $73 or decrease to $38 over the next year. The current price of the underlying stock is $53, and the risk-free interest rate is 5% per annum. What is this fair market value for the call option under these conditions? Do not round intermediate calculations. Round your answer to the nearest cent. $
Suppose an investor buys 300 stocks for 3 months, the stock price is 10 yuan, and the annual interest rate for 3 months is fixed at 5%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 15 yuan or falls to 8 yuan after 3 months of hedging, what are the losses of this investor?
Suppose an investor sells 100 stocks by short selling for 6 months, the stock price is 30 yuan, and the annual interest rate of 6 months is fixed at 3%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 35 yuan or falls to 25 yuan after 6 months of hedging, what are the losses of this investor?
The board of directors has just granted Mr. Levin at-the-money European call options on the company’s stock., which is currently trading at $55 per share. The stock pays no dividends. The options will expire in 5 years, and the standard deviation of the returns on the stock is 45%. Treasury bills that mature in 4 years currently yield a continuously compounded interest rate of 7%. Use the Black-Scholes model to calculate the value of the stock option. Use excel and share the formula template.
After an analysis of Lion/Bear, Inc., Karl O’Grady has concluded that the firm will face financial difficulty within a year. The stock is currently selling for $5 and O’Grady wants to sell it short. His broker is willing to execute the transaction but only if O’Grady puts up cash as collateral equal to the amount of the short sale. If O’Grady does sell the stock short, what is the percentage return he loses if the price of the stock rises to $8? Use a minus sign to enter the amount as a negative value. Round your answer to the nearest whole number. % What would be the percentage return if the firm went bankrupt and folded? Round your answer to the nearest whole number. %
You work in a derivatives section in an investment bank. In August, a customer who holds Texa stock priced at $150 is worried that the stock will fall in price by the end of the year. Assuming the stock does not pay a dividend, can you sell the customer an option that insures that if the stock price falls below $145, their stock plus option payoff will never fall below $145? Explain.
Suppose that a stock price is currently 56 dollars, and it is known that five months from now, the price will be either 22 percent higher or 22 percent lower. Find the value of a European put option on the stock that expires five months from now, and has a strike price of 55 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 6 percent.
Stacy Picone is an aggressive bond trader who likes to speculate on interest rate swings. Market interest rates are currently at 10.0%, but she expects them to fall to 8.0% within a year. As a result, Stacy is thinking about buying either a 25-year, zero-coupon bond or a 20-year, 8.5% bond. (Both bonds have $1,000 par values and carry the same agency rating.) Assuming that Stacy wants to maximize capital gains, which of the two issues should she select? What if she wants to maximize the total return (interest income and capital gains) from her investment? Why did one issue provide better capital gains than the other? Based on the duration of each bond, which one should be more price volatile? The capital gain of the zero-coupon bond is $65.4065.40. (Round to the nearest cent.) The capital gain of the coupon-bearing bond is $nothing. (Round to the nearest cent.)
You observe that a non-dividend paying stock currently trades for ₺150 on Borsa Istanbul. The annual standard deviation of its returns is expected to be 41% per year over the next year and the continuously compounded risk-free rate of interest is flat at 18% per year over all investment horizons. Compute the theoretical price of a European call option with a strike price of ₺200 and five months remaining until expiration written on a single share of this stock using to the Black-Scholes option pricing model
Monkey corporation want to buy stocks in the Goose company, Monkey financlal manager says that the stock fair price is 50 dollars if the treasury bill rate is 0.08 and the covariance between the stock and the market is 0.0034 and the standard deviation of the market is 0.055 the market return is 0.15what is the what is the requirec rate of return ?

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