Question

(1 point) In this chapter, assume the log-normal model. Unless otherwise stated, assume no arbitrage opportunities The current spot price of a stock is $36.00, the expected rate of return of the stock is 7.6%, and the volatility is 15%. The risk-free rate is 5.8% Compute the price of a derivative whose payoff in 16 months is - In(S5) + $0.537 Where S denotes the stock price in 16 months. Enter your solution as a dollar value, including dollar symbol ($), to two decimal places. $0.46

Answer 1

-Answol goswei Given details Page:o1 Custent spot porice f stock $ 36. 00 Expected nate f return & the stock - 4.6/. volatility 15%. gisk - free 5.8 /. >tate Requodecd computing the a deivative whose pay ff patce of in 16 months In(s=)+s°> payff funetion. given where in 16 monts S- stock рйcе (*) ( ins") + 0.537 ds ds ds d ( sins) s0.537 ds ds O.537 -1 x s + o, 537 O.463 o, 537 XS Inn

page:02 -b2 s tock in 16 mont porice -о. Чьз dF to.534 x (16) 16 ds + b.534 х о.244 + 6. 1487 6. 3125 +0.1487 %3D о. Чы2 4o.че Di46