Suppose that the price of an American call option that expires in 7 months and has a strike price of $382 is $22.87. The underlying stock price is $392.63.-The stock does not pay dividends and the term structure is flat, with all risk-free interest rates being 1.4%. What is the lower limit of the price of an American put option that expires in 7 months and has a strike price of $382? Report your answer in dollars and cents. Answer:

Suppose that the price of an American call option that expires in 7 months and has a strike price of $382 is $22.87. The underlying stock price is $392.63.-The stock does not pay dividends and the term structure is flat, with all risk-free interest rates being 1.4%. What is the lower limit of the price of an American put option that expires in 7 months and has a strike price of $382? Report your answer in dollars and cents. Answer:

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 1P

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In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). (1) What assumptions underlie the OPM? (2) Write out the three equations that constitute the model. (3) According to the OPM, what is the value of a call option with the following characteristics? Stock price = 27.00 Strike price = 25.00 Time to expiration = 6 months = 0.5 years Risk-free rate = 6.0% Stock return standard deviation = 0.49
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Suppose that call options on ExxonMobil stock with time to expiration 6 months and strike price $87 are selling at an implied volatility of 27%. ExxonMobil stock price is $87 per share, and the risk-free rate is 6%. Required: If you believe the true volatility of the stock is 31%, would you want to buy or sell call options? Now you want to hedge your option position against changes in the stock price. How many shares of stock will you hold for each option contract purchased or sold?
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.
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