Problem 22-3 Binomial modelThe share price of Heavy Metal (HM) changes only once a monthEither it goes up by 21% or it falls by 16.9%. Its price now is $41.3. The interest rate is 1.1% per month.a. What is the value of a one-month call option with an exercise price of $41.3?b. What is the option delta?c. The payoffs of the call option can be replicated by buying shares of stock and borrowing. What amount should be invested instock and what amount must be borrowed?d. What is the value of a two-month call option with an exercise price of $41?e. What is the option delta of the two-month call over the first one-month period?Complete this question by entering your answers in the tabs below.Req A and BReq CReq D and Ed. What is the value of a two-month call option with an exercise price of $417Note: Do not round intermediate calculations. Round your answer to 1 decimal place.e. What is the option delta of the two-month call over the first one-month period?Note: Do not round intermediate calculations. Round your answer to 3 decimal places.d. Option pricee. DeltaShow less A

a) Value of a one-month call option with an exercise price of $41.3: Up node: Su = $41.3 * 1.21 =…

Answered: Problem 22-3 Binomial model The share…

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 4MC

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es Problem 22-12 Delta What are the deltas of a call option and a put option with the following characteristics? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) = Stock price $50 Exercise price $50 Risk-free rate = 4.4% per year, compounded continuously Maturity 9 months Standard = 65% per year deviation Call option delta- Put option delta
QUESTION 18 Suppose that the 1-year, 2-year, 3-year, and 4-year spot rates are observed as follows: r1=9.7%, r2=10.2%, r3=10.9%, r4-12.3%, What must be the expected return in year 4 under the liquidity preference theory if the liquidity premium is 0.49%? Oa. 18.63% Ob. 16.61% c. 16.12% Od. 18.14%
Question 8 ABC stock has price $71.40 at noon, and currently pays no dividend. Consider a six-month European-style call on ABC stock. The call has price = 4.55, delta = 0.45, theta = -6.00/year, gamma = .026. Suppose that the stock price is still $71.40 in 1.0 months. What should be the (new) price of the call option?
Question A Consider a two-period binomial model, where each period is 6 months. Assume the stock price is $50.00, = 0.20, r = 0.06 and the dividend yield = 3.5%. What is the lowest strike price where early exercise would occur with an American put option? ........Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this line.
Problem 22-12 Delta What are the deltas of a call option and a put option with the following characteristics? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) Stock price $50 Exercise price = $50 Risk-free rate = 4.4% per year, compounded continuously Maturity 9 months Standard deviation = 65% per year Answer is complete but not entirely correct. Call option delta 0.6255 Put option delta -0.3745
QUESTION 1 A one-month European put option on a non-dividend-paying stock is currently selling for $1.5. The stock price is $37, the strike price is $43, and the risk-free interest rate is 5% per annum. What is the minimum arbitrage profit you can make in today's value? (Keep to 2 decimal places)
Question 16 A call option with an exercise price of $40 and four months to expiration sells for $6.78. If the risk-free rate is 1.80% per year (compounded continuously) and the market price of a stock is $45, calculate the price of a put option on this stock $5.24 $5.00 $1.54 $2.50
Problem 4 Consider a stock with current price $60. You are given: • Dividends of $1 each will be paid every three months; the next dividend will be paid in 2 months. • σ = 0.3. ⚫ The continuously compounded risk-free interest rate is 4%. Use the Black-Scholes methodology to price a nine-month at-the-money European put option on the stock.
Question 3: The price of a non-dividend paying stock is now $40. Over each of the next two three-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 4% per annum with continuous compounding. a. Calculate the risk-neutral probability p of an up-move over each three-month period b. Calculate the value of a six-month European call option with a strike price of $42 c. Calculate the value of a six-month European put option with a strike price of $42 d. If the six-month put option was American instead of European, how would you expect its value to be different (higher, the same, or lower) than the European one? Please explain
Question 4 - A stock price is currently worth $20. It is known that at the end of a 6 month period it is expected to go up by 8% or down by 5%. The risk-free interest rate is 4% per annum with continuous compounding. Use a two-step tree to calculate the value of a 1-year American exotic option whose payoff is payoff max (S+ ST - S²; 0). State in which node the option is early exercised.
Problem 9-2 The market price of a security is $43. Its expected rate of return is 20%. The risk-free rate is 3% and the market risk premium is 7.8%. What will be the market price of the security if its correlation coefficient with the market portfolio doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Market price
Question 5 Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. What is the price of the option if it is a European call? b. What is the price of the option if it is a European put? c. Verify that put-call parity holds. a.

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