the following for this diagram: me of options payoff ntify whether positive or negative premium ntify break-even point nat is the profitt or loss when stock price is $60 at maturity ppose you have this options position, should you exercise your right (if any) assuming that the stock price is S Option Payoffs and Profits $40 Long call $20
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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 = 0.49II. Suppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation, = 0.5 a. What is correct of the call options using Black-Scholes model? b. Compute the put options price using Black-Scholes model? c. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless.Note: Use the call and put options prices you have computed in the previous question (a) and (b) above.b. Name the options/stock strategy used to proof the put-call parity. c. What would be the extent of your profit in (a) depend on?Assume that you have been given the following information on Purcell Corporation's call options: Inputs Intermediate Calculations Current stock price = $12 d1 = 0.32863 Time to maturity of option = 9 months d2 = 0.05477 Variance of stock return = 0.10 N(d1) = 0.62878 Strike price of option = $12 N(d2) = 0.52184 Risk-free rate = 7% According to the Black-Scholes option pricing model, what is the option's value? Do not round intermediate calculations. Round your answer to the nearest cent. Use only the values provided in the problem statement for your calculations. $
- Please show step by step work (not in excel): What is the call option premium given the following information? What would happen to the call price if the company initiated and paid a dividend before the expiration of the option? What would happen to the call premium if the expiration of the option expanded beyond the current 9 months? Stock price $36.00 Strike price $30.00 Volatility 16% Dividend Yield 0.00 Time 0.75 Riskfree Rate 2.70%Whats the profit of the "Straddle" when stock price is $15, $20, $25, $30, $35, $40, $45, $50, $55, and $60 respectively? Given: - Stock price = $35.00 - Call option price = $3.00 - Put option price = $2.00 - Exercise Price = $35.00parts c, d, e Suppose an investor is considering a multi option strategy on a stock with a currentprice of $100. The following strategy is called a strangle. The investor purchases a call optionwith a strike price of $110 for a premium of $5 and purchases a put option with a strike priceof $90 for a premium of $3.a) Draw a payout diagram for the strangle option strategy at expiration.b) Determine the breakeven points for the strangle option strategy.c) Suppose the stock price at expiration is $120. What is the profit for the strangle optionstrategy?d) Suppose the stock price at expiration is $85. What is the profit for the strangle optionstrategy?e) What is the investor speculating on with her option strategy?
- Assume a stock is selling for GH¢48.50 with options available at 40, 50, and 60 strike prices.The 50 call option price is at 2.75.a. What is the intrinsic value of the 50 call?b. Is the 50 call in the money?c. Are the 40 and 60 call options in the money?Describe the effect on a call option’s price that results from an increasein each of the following factors: (1) stock price, (2) strike price, (3) time toexpiration, (4) risk-free rate, and (5) standard deviation of stock return.What is the put option premium given the following information? What would happen to the Put option premium if the risk-free rate significantly declined from its current level? Stock price $28.00 Strike price $35.00 Volatility 50% Dividend Yield 0.00 Time 0.50 Riskfree Rate 3.50%
- You are facing three stock investment alternatives, Stock A, Stock B and Stock C. Given the following information, please indicate which stock is (are) overvalued, which stock is (are) undervalued, and which stock is (are) correctly priced based on the required returns calculation using the Capital Asset Pricing Model (CAPM or Security Market Line=SML). The risk free rate is 3% and the risk premium for the market index return is 5%. Please Show Work Expected Stocks Returns BETA A 14% 1.2 B 8% 0.67 C 20% 2.5parts a, b, c Suppose an investor is considering a multi option strategy on a stock with a currentprice of $100. The following strategy is called a strangle. The investor purchases a call optionwith a strike price of $110 for a premium of $5 and purchases a put option with a strike priceof $90 for a premium of $3.a) Draw a payout diagram for the strangle option strategy at expiration.b) Determine the breakeven points for the strangle option strategy.c) Suppose the stock price at expiration is $120. What is the profit for the strangle optionstrategy?d) Suppose the stock price at expiration is $85. What is the profit for the strangle optionstrategy?e) What is the investor speculating on with her option strategy?Using the following information, calculate the overall payoff on the option given the stock price at maturity. Exercise price: 50.00 Premium: 7.00 Call / put: Call Long / short: Short Stock price at maturity 40.00 Select one: A) (7.00) B) 7.00 C) 3.00 D) (3.00)