Suppose a non-dividend paying stock is trading at $175 per share and has a volatility of 45%. What is the fair price of a 9-month European call option with a strike price of $190 per share using 1 binomial period? Assume the risk-free rate is 1%. Round to the nearest $0.01.

Suppose a non-dividend paying stock is trading at $175 per share and has a volatility of 45%. What is the fair price of a 9-month European call option with a strike price of $190 per share using 1 binomial period? Assume the risk-free rate is 1%. Round to the nearest $0.01.

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 6P: Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The...

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Stock Yields

The stock yield is otherwise known as the dividend yield. The dividend yield is an annual payment of the stock dividends to the holder of a firm’s stock. The dividend yield is a financial ratio to measure the value of dividend payout every year for the relative stock price. The yield of a stock is usually shown in a percentage that discloses the expected future earnings from stock depending on the current stock price in the future. Stock yield will change depending on the market fluctuations and in accordance with the market fluctuations, the dividends will be increased or decreased by the firm.

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