ESSEN.OF.INVESTMENTS+CONNECT
10th Edition
ISBN: 9781260361605
Author: Bodie
Publisher: MCG
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Chapter 16, Problem 2PS
A put option on a stock with a current price of
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An option has strike price of $9 and 12 months to expiry. The current price of the underlying share is $35 and its volatility (sigma) is 23%. The riskfree rate of interest is 4% per annum.
Calculate d2 for this option. [your answer should have at least 2 decimal places]
Give typing answer with explanation and conclusion
You are considering purchasing a put on a stock with a current price of $33. The exercise price is $35, and the price of the corresponding call option is $3.25. According to the put-call parity theorem, if the risk-free rate of interest is 4% and there are 90 days until expiration, the value of the put should be:
Suppose a put option is traded at $3. The underlying stock of the option is traded at $105 per share at the same time. The option expires
in 3 months and has a strike price of $104. What is the intrinsic value of the option? Is the option in the money, at the money, or out of
the money?
Chapter 16 Solutions
ESSEN.OF.INVESTMENTS+CONNECT
Ch. 16 - Prob. 1PSCh. 16 - A put option on a stock with a current price of 33...Ch. 16 - Prob. 3PSCh. 16 - Prob. 4PSCh. 16 - In each of the following questions, you are asked...Ch. 16 - Reconsider the determination of the hedge ratio in...Ch. 16 - Show that Black-Scholes call option hedge ratios...Ch. 16 - We will derive a two-State put option value in...Ch. 16 - a. Calculate the value of a call option on the...Ch. 16 - Prob. 10PS
Ch. 16 - Prob. 11PSCh. 16 - Prob. 12PSCh. 16 - Prob. 13PSCh. 16 - Prob. 14PSCh. 16 - Prob. 15PSCh. 16 - Prob. 16PSCh. 16 - 17. Find the Black-Scholes value of a put option...Ch. 16 - Prob. 18PSCh. 16 - What would be the Excel formula in Spreadsheet...Ch. 16 - Prob. 20PSCh. 16 - Prob. 21PSCh. 16 - Prob. 22PSCh. 16 - Prob. 23PSCh. 16 - Prob. 24PSCh. 16 - Prob. 25PSCh. 16 - Prob. 26PSCh. 16 - Prob. 27PSCh. 16 - Prob. 28PSCh. 16 - Prob. 29PSCh. 16 - Prob. 30PSCh. 16 - Prob. 31PSCh. 16 - Prob. 32PSCh. 16 - Prob. 33PSCh. 16 - Prob. 34PSCh. 16 - Prob. 35PSCh. 16 - Prob. 36PSCh. 16 - Prob. 38CCh. 16 - Prob. 39CCh. 16 - Prob. 40CCh. 16 - Prob. 41CCh. 16 - Prob. 42CCh. 16 - Prob. 43CCh. 16 - Prob. 44CCh. 16 - Prob. 1CPCh. 16 - Prob. 2CP
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- 14. Suppose a call option sells for $2.50, a put option sells for $2.00, both options have a $25.00 striking price, the current stock price is $25.50, and the options both expire in forty-six days. Using the put-call parity model, calculate the rate of interest implied in these numbers. 7arrow_forwardPrice of Call option is 2.27 Price of Put option is 20.45 Is there an arbitrage opportunity in this market? Explain in detailarrow_forward15. Find the implied volatility (to 2 decimals, for example, σ = 8.23%) of a Put option with a time to expiration of 11 months and a price of $6.13 2 The stock is currently trading at $47. The riskless rate is 2% per annum, and the strike/exercise price of the option is $50. 3 Hint: compute the Put price using the same formula as in exercise 4, as a function of the volatility σ. Then use Solver to change the volatility cell in order to obtain a price of $6.13 4 5 6 d1 = -0.0614997 7 d2 = 8 9 10 N(d1)= 11 N(d2)= 12 13 N(-d1)= 14 N(-d2)= 15 16 17 18 P = 27.41 19 So= 47 K= 50 r = 2% σ = 2.74% T= 0.91666667arrow_forward
- Using the binomial call option model to find the current value of a call option with a $25 exercise price on a stock currently priced at $26. Assume the option expires at the end of two periods, the riskless interest rate is ½ percent per period. What are the hedge ratios?arrow_forwardA. What is the price of a call option with a strike of $80 and a maturity of 2.5 years? The underlying asset is currently trading at $75. The risk-free rate is 6% and the volatility of the underlying asset is 64% B. What is the price of a put option with an identical strike price? C. Calculate the delta, theta, and vega of the call option. Express theta per month and verga per 1% increase in volatility. D. After 5 months the price has gone up by $10 and the volatility by 10%. Using delta, theta, and vega that you have calculated, what is the total change in value of the option?arrow_forward4.A put option and a call option with an exercise price of $50 expire in three months and sell for $.84 and $5.10, respectively. If the stock is currently priced at $53.38, what is the annual continuously compounded rate of interest?arrow_forward
- Calculate the elasticity of a call option with a premium of $5.00 and a strike price of $69. The call has a hedge ratio of 0.7, and the underlying stock's price is currently $35. (Round your answer to 2 decimal places.) Elasticity of the call %arrow_forwardQuestion 2. You have been asked to value a Arithmetic Lookback option which expires in six months time. At the end of the six months the buyer is paid the arithmetic mean of the underlying stock over the contract period. Using the compressed stock tree presented in Figure 1 and assuming an annual interest rate of 4.5% determine the fair price of the Arithmetic Lookback option. Why are Lookback options considered to he expensive? 182.5 158.7 138 138 120 120 104.4 104.4 90.8 79 Figure 1: Compressed stock treearrow_forward4) A stock is currently trading at $45. A call option has strike price $44, 0=23%, and maturity of 6 months. Interest rates are 3% per year. 4a) What is the probability that the option will end up "in-the-money"? 4b) What is the delta of the option? 4c) What is the price of the option?arrow_forward
- 1. If the contract at inception is $20 for a future expiring in 1 year and the current contract is 22 what is the inplied future value with rf rate of 5%? answers: A) 1.95 B) 2 C) 1.87 D) none of above 2. you have an option that pays 1 if the stock price = or above 10 and 0. If the cureent stock price is 7 and movements are to 14 and 3.5 what is the value of this option assuming expiry in 1 year and interest rate of 5% answers: A) .349 B) .356 C) .362 D) none of the abovearrow_forward3. Consider a non-dividend paying stock whose initial stock price is 62 and has a log- volatility of σ = 0.20. The interest rate r = 10%, compounded monthly. Consider a 5-month option with a strike price of 60 in which after exactly 3 months the purchaser may declare this option a (European) call or put option. Assume u = 1.05943 and d = = 0.94390 (a) Compute the values of the binomial lattice for 5 1 month period. 0 1 2 3 4 5 62 (b) Compute the appropriate risk-free rate. (c) Find the risk-neutral probability p of going up? (d) Find the values of call option and put option along this lattice: 0 5.85 1 2 3 4 5 call option 0 1 2 3 4 5 1.40 put optionarrow_forwardM6arrow_forward
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