The current price on a common stick is $30/share and its volatility is 25%. The call option for this stock has a strike/exercise price of 35$/share and will expire in 1 year. THe current risk-free interest rate is 4%. Calculate the price of this call option. Please show steps by steps

The current price on a common stick is $30/share and its volatility is 25%. The call option for this stock has a strike/exercise price of 35$/share and will expire in 1 year. THe current risk-free interest rate is 4%. Calculate the price of this call option. Please show steps by steps

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 4P: Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call...

See similar textbooks

Related questions

Q: A call option has a strike price of 55, expires in 6 months, and has a price of $5.04. If the…

A: The question is based on the concept of Derivatives

Q: What is the value of a call option if the underlying stock price is $81, the strike price is $90,…

A: Given Information: Stock price is $81 Strike price is $90 Expiration date in 60 days Volatility is…

Q: The Quick-time Company stock is currently selling for $32. There is a put option on the stock rith…

A: Stock Price 32.00 Strike Price 29.00 Variance 0.0625 Risk Free Rate 0.02 Time Period 6…

Q: The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate…

Q: The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $50 per share…

A: a) Formula:

Q: The current price of a stock is ₱100 and has volatility (σ) of 0.25. The continuous risk free rate…

A: We will use risk neutral approach for binomial option pricing model for which we need to find the…

Q: The current price of Estelle Corporation stock is $25. In each of the next two years, this stock…

A: Given Strike Price = $25 Current Stock PRice = $25 In each year it can either go up by 20% or go…

Q: The current price of a stock is $20. In 1 year, the price will be either $26 or$16. The annual…

A: Excel Spreadsheet: Excel Workings:

Q: Suppose a non-dividend paying stock is trading at $175 per share and has a volatility of 45%. What…

A: Binomial Option pricing model is a tool which helps in valuing an option and as compred to Black…

Q: A stock is currently selling for $55 per share. A call option with an exercise price of $65 sells…

A: The term stock refers to the equity securities that are issued by a company for the purpose of…

Q: Lett Incorporated's stock price is now $50, but it is expected either to rise by a factor of 1.5 or…

A: Concept: Call Option provides a right but not the obligation to buy to the option buyer. Given…

Q: A stock with a current price of $43 will either move up by a factor of 1.20 or down by a factor of…

A: The current value of the call option can be computed using the Present worth of expected cash flow…

Q: The current price of a stock is $35, and the annual risk-free rate is 3%. A call option with a…

A: Put option is defined as the contract which provide the owner the right to sell but not the…

Q: A stock currently trades for $120 per share. Call options on the stock are available with a strike…

A: Black Scholes is mathematical model used to price options.

Q: A stock currently sells for 50 and can rise by 6 or fall by 4 for each of the next two periods. The…

A: Current market price Values at the end of period one Values at the end of period two Value of call…

Q: The current price of a stock is $55. In 1 year, the price will be either $50or $65. The annual…

A: Excel Spreadsheet: Excel Workings:

Q: Estimate the "Rho" of the following option. Assume that there are 252 days in a trading year and…

A: Answer is $1.9086 ;Approximately equals to $1.78 in the option given in question Steps are as…

Q: he price of Cilantro, Incorporated, stock will be either $55 or $75 at the end of the year. Call…

A: Call option: In an option's contract, the holder is granted the right to purchase shares of an…

Q: The current price of a stock is $50, and the annual riskfreerate is 5.5%. A call option with a…

A: Option: An option is a special type of contract which gives its holder the right but not obligation…

Q: Consider a portfolio of PCG stock options that consists of the following components, all with one…

A: A put option is an instrument which provides its holder an option to sell an underlying asset on a…

Q: A stock has a current price of $116. An option on this stock that expires in six months has an…

A: Here, Current Price is $116 Strike Price is $115 Risk Free Rate is 5% Volatility is 30% Time to…

Q: onsider the following data for a certain stock: Price of the stock now = 50 = Rs.150 Exercise price…

A: The Black-Scholes model is a popular mathematical model for valuation of the European style of…

Q: A stock is selling today for $30. The stock has an annual volatility of 70 percent and the annual…

A: Calculation of Time Value of European Call Option:The time value of European call option is…

Q: The current price of a non-dividend paying stock is $100. Every three months, it is expected to go…

A: "Hi, Thanks for the Question. since you asked multiple question, we will answer the first question…

Q: The current price of KD Industries stock is $20. In the next year the stock price will either go up…

A: Current price of KD Industries stock = $20 Stock price will either go up by 20% or go down by 20%…

Q: The stocks of Cee Mobile Limited is currently trading at $73 each. The call option on the company’s…

A: Call Option is a derivative which is traded only through exchanges for allowing its buyer or holder…

Q: ck price is 40 and we need to price a call option with a strike of 50 maturing in 4 months. The…

A: The given problem can be solved using Black scholes model.

Q: A stock of 9 is currently priced at $38. A call option with an expiration of one year has an…

Q: uppose Carol's stock price is currently $20. If the standard deviation of the continuously…

A: In this we need to calculate the call option price using binomial pricing strategy.

Q: The current price of a non-dividend paying stock is $100. Every three months, it is expected to go…

A: Stock Price = $100 Strike Price =$98 Risk Free rate = 4% Up Factor = 9% Down Factor = 5%

Q: Stock A has a current price of $25, a beta of 1.25, and a dividend yield of 6%. If the Treasury bill…

A: Current price of stock= $25 beta (β)=1.25 Dividend yield=6% Treasury bill yield=5% Expected return…

Q: Using the Black-Scholes-Merton (BSM) model, calculate the value of the Call option, given the above…

A: An option contract's price is determined using the Black Scholes Model. It is the limiting case of…

Q: The current stock price of Chocho inc is $125. You expect the stock price a year from now to be…

A: The question is based on the concept of Derivatives

Q: A stock has a volatility of 35%. A call option with an exercise price of $50 has an expiration of 6…

A: Given: Particulars Amount Current stock price 5 Standard deviation 35% Risk free rate 5%…

Q: Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e.,…

A: The method that helps in the valuation of option prices relative to their underlying asset's prices…

Q: A stock is selling today for $110. The stock has an annual volatility of 64 percent and the annual…

A: Black Scholes Model is used to calculate option prices: Put option price is calculated by put call…

Q: The stocks of Cee Mobile Limited is currently trading at $73 each. The call option on the company’s…

A: Given: Particulars Spot price $73.00 Standard deviation 35% Risk free rate 2% Exercise…

Q: The strike price of a European put option is $30, the current price of the underlying stock is $24,…

A: Let (S) denote share price, (P) payoff, (u) up-factor and (d) down-factor. The possible value of…

Q: A stock has a 15 percent change of moving either up or down per period and is currently priced at…

A: "Hi, Thanks for the Question. Since you asked multiple sub parts question, we will answer first…

Q: ose the stock price is 40 and we need to price a call option with a strike of 45 maturing in 4…

A: The given problem relates to black and scholes model.

Question

Calculate the price of this call option. Please show steps by steps

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step by step

Solved in 4 steps with 5 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

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.)
A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL?
Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
The current price of a stock is $22, and at the end of one year its price will be either $29 or $15. The annual risk-free rate is 3%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binominal model, what is the option's value?
The stock price of Trollhätan Corporation is $90. It has a volatility of 40% per year. The one- year risk-free interest rate is 5% and will remain constant in the future, a) Using a three (3) step binomial tree, apply the risk-neutral valuation approach to calculate the price of a one -year call option on the stock of Trollhätan Corporation with a strike price of $70.
The current price of a stock is $20, and at the end of one year its price will be either $22 or $18. The annual risk-free rate is 2.0% (use daily compounding with 365 days/year), based on daily compounding. A 1-year call option on the stock, with an exercise price of $19, is available. Based on the binominal model, what is the option's value?(Please Show Work)