The current price of KD Industries stock is $20. In the next year the stock price will either go up by 20% or go down by 20%. KD pays no dividends. The one year risk-free rate is 5% and will remain constant. Using the binomial pricing model, the calculated price of a one-year call option on KD stock with a strike price of $20 is closest to:

The current price of KD Industries stock is $20. In the next year the stock price will either go up by 20% or go down by 20%. KD pays no dividends. The one year risk-free rate is 5% and will remain constant. Using the binomial pricing model, the calculated price of a one-year call option on KD stock with a strike price of $20 is closest to:

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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Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of 21 and that expires in 1 year. (Hint: Use daily compounding.)
The current price of Estelle Corporation stock is $25. In each of the next two years, this stock price will either go up by 20% or go down by 20%. The stock pays no dividends. The one-year risk-free interest rate is 6% and will remain constant. Using the Binomial Model, calculate the price of a one-year call option on Estelle stock with a strike price of $25.
The current price of KD Industries stock is $20. In the next year the stock price will either go up by 20% or go down by 20%. KD pays no dividends. The one-year risk-free rate is 5% and will remain constant. Using the binomial pricing model, the calculated price of a one-year put option on KD stock with a strike price of $20 is closest to:
The current price of XL Corporation stock is $40. In each of the next two years, this stock price can either go up by $15.00 or go down by $15.00. XL stock pays no dividends. The one-year risk-free interest rate is 15% and will remain constant. Using the binomial pricing model, calculate the price of a two-year American put option on LC stock with a strike price of $40.
The current price of Estelle Corporation stock is $23.00. In each of the next two years, this stock price will either go up by 23% or go down by 23%. The stock pays no dividends. The one-year risk-free interest rate is 5.0% and will remain constant. Using the Binomial Model, calculate the price of a one-year call option on Estelle stock with a strike price of $23.00.
The current price of XL Corporation stock is $40. In each of the next two years, this stock price can either go up by $15.00 or go down by $15.00. XL stock pays no dividends. The one-year risk-free interest rate is 15% and will remain constant. Using the binomial pricing model, calculate the price of a two-year American straddle option on XL stock with a strike price of $40.
The current stock price is $10. In each of the next two years, the stock price can either go up by $2 or go down by $2. The stock pays no dividends. The one-year risk-free interest rate is 5% and will remain constant during this two-year period. a) Using the Binomial Model of option pricing, calculate the price of a two-year call option on the stock with a strike price of $13. b) Using Risk Neutral valuation calculate the price of two-year put option on the stock with a strike price of $7.
The current price of MMX Corporation stock is $10. In each of the next two years, this stock price can either go up by $3.00 or go down by $2.00. MMX stock pays no dividends. The one-year risk-free interest rate is 5% and will remain constant. Using the binomial pricing model, calculate the price of a two-year call option on MMX stock with a strike price of $9. PLease answer with solution
The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $100 per share, and the price of a 3-month call option at an exercise price of $100 is $10.a. If the risk-free interest rate is 10% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of $100? (The stock pays no dividends.)b. What would be a simple options strategy to exploit your conviction about the stock price’s future movements? How far would it have to move in either direction for you to make a profit on your initial investment?
Lett Incorporated’s stock price is now $50, but it is expected eitherto rise by a factor of 1.5 or to fall by a factor of 0.7 by the end ofthe year. There is a call option on Lett’s stock with a strike price of$55 and an expiration date 1 year from now. What are the stock’spossible prices at the end of the year? ($75 or $35) What is thecall option’s payoff if the stock price goes up? ($20) If the stockprice goes down? ($0) If we sell 1 call option, how many sharesof Lett’s stock must we buy to create a riskless hedged portfolioconsisting of the option position and the stock? (0.5) What is thepayoff of this portfolio? ($17.50) If the annual risk-free rate is 6%,then how much is the riskless portfolio worth today (assumingdaily compounding)? ($16.48) What is the current value of the calloption? ($8.52)