None 9. You own one call option with an exercise price of $40 on Northwest Exporters stock. Thisstock is currently selling for $37.90 a share but is expected to increase to either $38 or $43 ashare over the next year. The risk-free rate of return is 4 percent and the inflation rate is 3.5percent. What is the current value of your option if it expires in one year?A. $.41B. $.82C. $1.67D. $2.10E. $5.00

Given information:- Exercise price (X) = $40- Current stock price (S) = $37.90- Expected stock…

Answered: 9. You own one call option with an…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

The current price of a non-dividend paying stock is $30. Use a two -step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per annum with continuous compounding. What is the option price when the volatility is 20%? (Hint: Calculate u and d using the CRR approach.) A. $1.48 B. $1.08 C. $1.68 D. $1.28
C. Draw a graph of the SML and locate the projects (A) and (B) on the graph. 5. Effective Annual Yield (EAY) and Effective Annual Rate (EAR) A. You plan to invest $1,000 for one year and you have the opportunity to invest it at a 12 percent APR, compounded monthly. Alternatively, you could invest the funds at an annual rate of 12.3 percent compounded semiannually. What is the EAY of each alternative? (Hint: You need to carry your answer to at least the fourth decimal place.) Which investment should be chosen? 2
9. The stock price of ABC Corporation is currently $220. Over the next year, the stock price will increase by 15% or decrease by 10%. The interest rate at-which investors invest in riskless assets is 4%. Using the binomial option pricing model, the value of a call option with an exercise price of $230 and an expiration date 1 year from now should be worth today. A. $10.56 B. $9.61 C. $11.03 D. $12.38
Consider a European put option on a non-dividend paying stock with exercise price 100 USD and expiration time in one year. Interest rate is 1 percent and the price of the stock today is 75 USD. For what price of the option is the Black-Scholes implied volatility equal to 0.35 Use excel.
A put option and a call option with an exercise price of $115 and three months to expiration sell for $5.45 and $8.75, respectively. If the risk-free rate is 2.0% per year, compounded continuously, what is the current stock price? $111.13 $121.13 $117.73 $112.40
Consider a European call option on a non-dividend paying stock with exercise price 100 USD and expiration time in one year. Interest rate is 1 percent and the price of the stock today is 75 USD. For what price of the option is the Black-Scholes implied volatility equal to 0.35 Use excel
The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per year with continuous compounding. What is the option price when u = 1.1 and d = 0.9? O $1.29 O $1.69 O $1.49 O None of these O $1.89 ◄ Previous Next ▸
Consider a call option on Stock X. The call expires in 7 months and has a strike price X=$22. The current price of stock X is $20. In 7 months, the stock price can either go up to 23 (up state) or go down to $19 (down state). The call premium in the 2 states : $1 in the up state and $0 in the down state. Assume that the risk-free rate is 12% per annum. Calculate the hedge ratio. (Please report your answer using 2 decimals) Continuation of Question 1.Calculate the value of the call in period 0. (Hints: Use continuous discounting when calculating present value. Also, please report your answer using 4 decimals)
Eagletron's current stock price is $10. suppose that over the current year, the stock price will either increase by 100% or decrease by 50%. Also , the risk free rate is 25% (EAR). A) what is the value today of a one- year at- the- money European Put Option on Eagletron's stock?
13. You are considering buying a Call Option on XYZ Company stock. XYZ Company stock is currently at $75 per share, and you predict that it will be $50 or $100 in one year. Call Option will support you for XYZ Company stock in buying one year for $65. Based on this information, answer the following questions:A. What is the value of the Call Option if the risk-free interest rate is 3%?B. Give your analysis of the relationship between buying an option with the risk of the company.
2. Linkline's stock is trading at 55 today and you have determined the outlook for the next year is that the stock may increase by 14% or by 3% next year. The call option has a strike price of $56. The risk free rate is 2.25% and the option is for 1 year. What is the value of the call?
Assume only two states will exist one year from today when a call on Delta Transportation, Inc. stock expires. The price of Delta stock will be either $60 or $40 on that date. Today, Delta stock trades for $55. The strike price of the call is $50. The continuously compounded risk - free rate is 9%. a. What is the tracking portfolio (\Delta and b)? b. How much are you willing to pay for the call option?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS