ZuoTi.Pro
Question

5. Consider a European call option on the stock of XYZ, with a strike price of $25 and two months to expiration. The stock pays continuous dividends at the annual yield rate of 5%. The annual continuously compounded risk free interst rate is 11%. The stock currently trades for $23 per share. Suppose that in two months, the stock will trade for either S18 per share or $29 per share. Use the one-period binomial option pricing model to find todays price of the call
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

29 U t26 18 C-o t-d 0.40 0.48 00 -0 1:92 1.g

0 0
Add a comment
Know the answer?
Add Answer to:
5. Consider a European call option on the stock of XYZ, with a strike price of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Consider a European put option on the stock of XYZ, with a strike price of $30...

    Consider a European put option on the stock of XYZ, with a strike price of $30 and two months to expiration. The stock pays continuous dividends at the annual continuously com- pounded yield rate of 5%. The annual continuously compounded risk free interst rate is 11%. The stock currently trades for $23 per share. Suppose that in two months, the stock will trade for either $18 per share or $29 per share. Use the one-period binomial option pricing to find...

  • 1. Consider the following information about a European call option on stock ABC: . The strike...

    1. Consider the following information about a European call option on stock ABC: . The strike price is S100 The current stock price is $110 The time to expiration is one year The annual continuously-compounded risk-free rate is 5% ·The continuous dividend yield is 3.5% Volatility is 30% . The length of period is 4 months. Find the risk-neutral probability p*. Hint: 45.68%

  • You purchase a European put option on XYZ stock with strike price 50. What is the...

    You purchase a European put option on XYZ stock with strike price 50. What is the payoff to the option if XYZ stock is trading at 48 on the expiration day? You purchase a 1-year European call option on ABC stock with strike price 100. The option premium is $10. The effective annual interest rate is 10%, so that 100 dollars lent for 1 year will return 110 dollars. What is the PROFIT if ABC stock is trading at 111...

  • A 10-month European call option on a stock is currently selling for $5. The stock price...

    A 10-month European call option on a stock is currently selling for $5. The stock price is $64, the strike price is $60. The continuously-compounded risk-free interest rate is 5% per annum for all maturities. a) Suppose that the stock pays no dividend in the next ten months, and that the price of a 10-month European put with a strike price of $60 on the same stock is trading at $1. Is there an arbitrage opportunity? If yes, how can...

  • The price of a European call option on a non-dividend-paying stock with a strike price of...

    The price of a European call option on a non-dividend-paying stock with a strike price of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to maturity is one year. What is the price of a one-year European put option on the stock with a strike price of $50? $2.09 $7.52 $3.58 $9.91

  • A European call option has a strike price of $20 and an expiration date in six...

    A European call option has a strike price of $20 and an expiration date in six months. The premium for the call option is $5. The current stock price is $25. The risk-free rate is 2% per annum with continuous compounding. What is the payoff to the portfolio, short selling the stock, lending $19.80 and buying a call option? (Hint: fill in the table below.) Value of ST Payoff ST ≤ 20 ST > 20 How much do you pay...

  • A one-year European call option on Stanley Industries stock with a strike price of $55 is...

    A one-year European call option on Stanley Industries stock with a strike price of $55 is currently trading for $75 per share. The stock pays no dividends. A one-year European put option on the stock with a strike price of $55 is currently trading for $100. If the risk-free interest rate is 10 percent per year, then what is the current price on one share of Stanley stock assuming no arbitrage?

  • Problem 12. A European call and put option on a stock both have a strike price...

    Problem 12. A European call and put option on a stock both have a strike price of $30 and an expiration date in three months. The price of the call is $3, and the price of the put is $2.25. The risk free interest rate is 10% per annum, the current stock price is $31. Indentify the arbitrage opportunity open to a trader.

  • 1. A 10-month European call option on a stock is currently selling for $5. The stock...

    1. A 10-month European call option on a stock is currently selling for $5. The stock price is $64, the strike price is $60. The continuously-compounded risk-free interest rate is 5% per annum for all maturities. 1) Suppose that the stock pays no dividend in the next ten months, and that the price of a 10-month European put with a strike price of $60 on the same stock is trading at $1. Is there an arbitrage opportunity? If yes, how...

  • Question 7: Consider a European call option and a European put option on a non dividend-paying...

    Question 7: Consider a European call option and a European put option on a non dividend-paying stock. The price of the stock is $100 and the strike price of both the call and the put is $103, set to expire in 1 year. Given that the price of the European call option is $10.57 and the risk-free rate is 5%, what is the price of the European put option via put-call parity? Question 8: Suppose a trader buys a call...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT