Please answer both questions You have the following information about LearnMore Inc.'s stock and a two-month call option with a strike price of$140.00. LearnMore Inc.'s current stock price is $100.00. You are using the multiperiod binomial option pricingmodel to find the value of the two-month option with two periods. Tu and TTd values given here apply to any period.Data Collected forLearnMore Inc.u1.5032d0.5467Tu0.3643Па0.5494You work with a junior analyst to calculate the value of the option, and she submits her inferences to you. Which ofthe following points are true in the case of LearnMore Inc.'s stock options? Check all that apply.The value of the call option will always remain $3.76, irrespective of the time until expiration.The value of the two-month call option with a strike price of $140.00 at the end of two months will be $3.76.The option payoff if the stock goes up in two months will be $10.32.LearnMore Inc.'s stock price after two months likely will be $150.32 if the stock goes up by a factor of 1.5032. 4. Option pricing - Multiperiod binomial approachAaAaThe value of an option can be calculated by using a step-by-step approach in the case of single periods or by usingsophisticated formulas that can be easily created through a spreadsheet. In the real world, two possible outcomes fora stock price in six months is an assumption. The stock markets are volatile, and stocks move up and down based onmarket- and firm-specific factors.Use the following formula to calculate the value of any call option within the same time period. To use the formula fordifferent call options, you can solve this formula with algebra or program it into a spreadsheet.Cu{[1 + (TRF / 365)365/(t/n) – d]}+Ca{u - [1 + (rRF / 365)365/(t/n)]}u - du - dVc =[1 + (TRF / 365)]365/(t/n)Based on your understanding of the binomial option pricing model, is the following statement true or false?Tu and Td, sometimes called primitive securities, represent variables that impact the value of an option butdepend on the stock process factors u and d, the risk-free rate, time until expiration, and the number ofperiods until expiration.FalseTrueYou have the following information about LearnMore Inc.'s stock and a two-month call option with a strike price of+140 00 Lo arn More Inc 'e CUrrent cteck price ic +100 00Vou are ucing the multineried binemial ontion pricing

You have the following information about LearnMore Inc.'s stock and a two-month call option with a strike price of $140.00. LearnMore Inc.'s current stock price is $100.00. You are using the multiperiod binomial option pricing model to find the value of the two-month option with two periods. Tu and Ia values given here apply to any period. Data Collected for LearnMore Inc. u 1.5032 d. 0.5467 Пи 0.3643 Па 0.5494 You work with a junior analyst to calculate the value of the option, and she submits her inferences to you. Which of the following points are true in the case of LearnMore Inc.'s stock options? Check all that apply. O The value of the call option will always remain $3.76, irrespective of the time until expiration. The value of the two-month call option with a strike price of $140.00 at the end of two months will be $3.76. The option payoff if the stock goes up in two months will be $10.32. LearnMore Inc.'s stock price after two months likely will be $150.32 if the stock goes up by a factor of 1.5032.

You have the following information about LearnMore Inc.'s stock and a two-month call option with a strike price of $140.00. LearnMore Inc.'s current stock price is $100.00. You are using the multiperiod binomial option pricing model to find the value of the two-month option with two periods. Tu and Ia values given here apply to any period. Data Collected for LearnMore Inc. u 1.5032 d. 0.5467 Пи 0.3643 Па 0.5494 You work with a junior analyst to calculate the value of the option, and she submits her inferences to you. Which of the following points are true in the case of LearnMore Inc.'s stock options? Check all that apply. O The value of the call option will always remain $3.76, irrespective of the time until expiration. The value of the two-month call option with a strike price of $140.00 at the end of two months will be $3.76. The option payoff if the stock goes up in two months will be $10.32. LearnMore Inc.'s stock price after two months likely will be $150.32 if the stock goes up by a factor of 1.5032.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter8: Financial Options And Applications In Corporate Finance

Section: Chapter Questions

Problem 5MC: In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). (1)...

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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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Assume that you have been given the following information on Purcell Industries' call options: Current stock price = $14 Strike price of option = $13 Time to maturity of option = 9 months Risk-free rate = 6% Variance of stock return = 0.16 d1 = 0.51704 N(d1) = 0.69744 d2 = 0.17063 N(d2) = 0.56774 According to the Black-Scholes option pricing model, what is the option's value?
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