Question

1) AAPL is trading at $ 224.00. In 1 year it can either go up to $ 300 or down to $ 175. If current 1 year t-bill is yielding 0.05%, find the price of a 1 year call option with an exercise price of $ 200. Use put - call parity to find the price of a one year put option on AAPL with a strike price of $ 200.

Answer 1

to down to $175 1 year it can ginen: AAPL trading at $224 (5) go up to 4300 ussent l year t-bill is yielding 0.05%. IR = 148 = 1.0005) call option with exercise price of $200. (X) Sof: first, we will find ud. Price of a year 300 1.33 u upmone 224 f 175 224 = 0.78 downmore 1.0005 -0.78 = 0.4 Tv R-d u-d Risk rental 1-33 -0.78 probability (upmone) = 0.6 1-0.4 To Binomial Tree: (us) $300 Cu = $100 X = $200 0.4 [ Call intrinsic value = max (5-0,0) 1387224 0.6 $175 Cd = 0 (ds) ICS Scanned with CamScanner

call price Cu X Tu + Cd XII, (6) R 100 X 0.4 + 0x0.6 1.0005 $39.99 Ans. Using Put- Call Parity st Po = Cot PV of xli.e. y tr - ) 224 t Po = 39.98 t 200 1.0005 - 224 Po 39.98 + 200 1.0005 $15.99 Ans. ICS Scanned with CamScanner