Homework Answers
|
Spot Rate |
USD/CHF |
0.7 |
|||
|
Strike Price |
0.68 |
||||
|
Total Investment Today |
half the price of share - price of option |
||||
|
0.38695 - max(0.7739,0.68) |
Considering UP |
||||
|
Portfolio Value Today (UP State) |
0.38695 |
||||
|
Portfolio Value Today (Down State) |
0.3166 - max(0.6332,0.68) |
||||
|
0.3634 |
|||||
|
Payoff for Up state |
0.38695 |
||||
|
Pay off for Downstate |
0.3634 |
||||
|
Hedge Ration |
SPOT RATE * Variance |
0.25438 |
|||
|
Hedge Ratio |
0.65 |
0.657397597 |
|||
|
Bond Face Value |
1 |
CHF |
|||
|
Bond Value in up state |
0.5-0.7739 |
0.2739 |
|||
|
Premium Payoff in Upstate |
0.2739 |
||||
|
Premium payoff in downstate |
0.18 |
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6. Use binomial option pricing model for this question. Suppose the current spot rate for USD/CHF...
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You observe that the spot price of the Swiss franc (CHF) is 1.14 USD/CHF, and that the 1 year forward rate is 1.07 USD/CHF. What is the percent forward premium? Enter answer as percent, accurate to 2 decimal places
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Binomial option pricing model A stock currently trades for $41. In one month, the price will either be $50 or $36. The annual risk-free rate is 6%; assume daily interest compounding, and 365 days per year. The value of a one-month call option with an exercise price of $39 is $______.
QUESTION 7 Suppose the price of a good is €10 and the original spot rate is...
QUESTION 7 Suppose the price of a good is €10 and the original spot rate is $1/€. Suppose the euro strengthens by 5%. The cost of the good in the United States would: Decrease from $10 to $9.50. Increase from $10 to $11. Increase from $10 to $10.50 Decrease from $10 to $9. QUESTION 11 Ain) occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. The agreement is a contract...
Binomial option pricing model A stock currently trades for $41. In one month, the price will either be $47 or $34. The a...
Binomial option pricing model A stock currently trades for $41. In one month, the price will either be $47 or $34. The annual risk-free rate is 6%; assume daily interest compounding and 365 days per year. The value of a one-month call option with an exercise price of $39 is $______.
3. Use a one step binomial option pricing model to value a 1 year at the...
3. Use a one step binomial option pricing model to value a 1 year at the money call option on AT&T. Assume interest rates are 2%. How does your value compare with the market price?
Question 15: Assume that the one-year interest rates for USD and CHF are: PUSD = 5%...
Question 15: Assume that the one-year interest rates for USD and CHF are: PUSD = 5% and CHF = 2% and that the expected spot rate at t = 1 is E (XCHF/USD = 1.12, what is the short-run intrinsic value of the USD at t = 0 according to the UIRP condition?
BF2207 Question 2 Suppose that, six months ago, you sold a call option on 1,000,000 euros...
BF2207 Question 2 Suppose that, six months ago, you sold a call option on 1,000,000 euros (EUR) with an expiration date of six months and an exercise price of 1.1780 United States dollars (USD). You received a premium on the call option of 0.045 USD per unit. Assume the following: • Money market interest rates for EUR are constant through time and equal 5% for all maturities. • Money market interest rates for USD are constant through time and equal...
Use a two-step binomial model to evaluate a call option on a stock with the following...
Use a two-step binomial model to evaluate a call option on a stock with the following price projections. The current stock price is $80 and the strike price on the options is $82. The option expires in 6 months so each step is 3 months. The risk- free rate is 5%. What is the value of the call option? Note: to be eligible for partial credit, please show your work as much as possible and be sure to clearly indicate...
5. Option pricing - Single-period binomial approach A Aa The value of an option can be...
5. Option pricing - Single-period binomial approach A Aa The value of an option can be calculated by using a step-by-step approach in the case of single periods or by using sophisticated formulas that can be easily created through a spreadsheet. In the real world, two possible outcomes for a stock price in six months is an assumption. The stock markets are volatile, and stocks move up and down based on market- and firm-specific factors. Consider the case of Canada...
5. Option pricing - Single-period binomial approach The value of an option can be calculated by...
5. Option pricing - Single-period binomial approach The value of an option can be calculated by using a step-by-step approach in the case of single periods or by using sophisticated formulas that can be easily created through a spreadsheet. In the real world, two possible outcomes for a stock price in six months is an assumption. The stock markets are volatile, and stocks move up and down based on market- and firm-specific factors. Consider the case of SolarSystems Inc.: Shares...
QUESTION 7 Suppose the price of a good is €10 and the original spot rate is $1/€. Suppose the euro strengthens by 5%. The cost of the good in the United States would: Decrease from $10 to $9.50. Increase from $10 to $11. Increase from $10 to $10.50 Decrease from $10 to $9. QUESTION 11 Ain) occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. The agreement is a contract...
3. Use a one step binomial option pricing model to value a 1 year at the money call option on AT&T. Assume interest rates are 2%. How does your value compare with the market price?
Question 15: Assume that the one-year interest rates for USD and CHF are: PUSD = 5% and CHF = 2% and that the expected spot rate at t = 1 is E (XCHF/USD = 1.12, what is the short-run intrinsic value of the USD at t = 0 according to the UIRP condition?
BF2207 Question 2 Suppose that, six months ago, you sold a call option on 1,000,000 euros (EUR) with an expiration date of six months and an exercise price of 1.1780 United States dollars (USD). You received a premium on the call option of 0.045 USD per unit. Assume the following: • Money market interest rates for EUR are constant through time and equal 5% for all maturities. • Money market interest rates for USD are constant through time and equal...
Use a two-step binomial model to evaluate a call option on a stock with the following price projections. The current stock price is $80 and the strike price on the options is $82. The option expires in 6 months so each step is 3 months. The risk- free rate is 5%. What is the value of the call option? Note: to be eligible for partial credit, please show your work as much as possible and be sure to clearly indicate...
5. Option pricing - Single-period binomial approach A Aa The value of an option can be calculated by using a step-by-step approach in the case of single periods or by using sophisticated formulas that can be easily created through a spreadsheet. In the real world, two possible outcomes for a stock price in six months is an assumption. The stock markets are volatile, and stocks move up and down based on market- and firm-specific factors. Consider the case of Canada...
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