Homework Answers
Ans : Option A i.e 0.0001 is the answer
Option Premium can be calculated through Time value and Intrisic value
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Problem 7 of 10 You are given (i) The spot exchange rate is 95Y/$1. The continuously...
1a) The current price of a stock is $43, and the continuously compounded risk-free rate is...
1a) The current price of a stock is $43, and the continuously compounded risk-free rate is 7.5%. The stock pays a continuous dividend yield of 1%. A European call option with a exercise price of $35 and 9 months until expiration has a current value of $11.08. What is the value of a European put option written on the stock with the same exercise price and expiration date as the call? Answers: a. $5.17 b. $3.08 c. $1.49 d. $2.50...
Thanks anyway! For a stock, you are given: •The stock’s price is 40. •The continuously compounded...
Thanks anyway! For a stock, you are given: •The stock’s price is 40. •The continuously compounded risk-free interest rate is 5%. •The stock’s continuous dividend rate is 2%. •A one-year 35-strike European call option has premium of 10. •A one-year 45-strike European call option has premium of 2. Determine the lowest and highest arbitrage-free premiums for a one-year 40-strike European put option on the stock.
. The spot price per share is $115 and the risk free rate is 5% per annum on a continuously compounded basis. The annual...
. The spot price per share is $115 and the risk free rate is 5% per annum on a continuously compounded basis. The annual volatility is 20% and the stock does not pay any dividend. All options have a one-year maturity. In answering the questions below use a binomial tree with three steps. Each step should be one-third of a year. Show your work. 1.Using the binomial tree, compute the price at time 0 of a one-year European call option...
The current price of stock XYZ is $100. Stock pays dividends at the continuously compounded yield...
The current price of stock XYZ is $100. Stock pays dividends at the continuously compounded yield rate of 4%. The continuously compounded risk-free rate is 5% annually. In one year, the stock price may be 115 or 90. The expected continuously compounded rate of return on the stock is 10%. Consider a 105-strike 1-year European call option. Find the continuously compounded expected rate of discount γ for the call option.
Question 3 (9 marks) Consider the following information about a non-dividend paying stock: The current stock...
Question 3 (9 marks) Consider the following information about a non-dividend paying stock: The current stock price is $36, and its return standard deviation is 30% per year. The continuous compound risk-free rate is 3% per year. Assume that the Black-Scholes model correctly prices all the options written on the stock given the information above. a). A call option written on the stock expires in 1 year and has an exercise price of $36. Calculate the Black-Scholes value of the...
The spot price per share is $115 and the risk free rate is 5% per annum...
The spot price per share is $115 and the risk free rate is 5% per annum on a continuously compounded basis. The annual volatility is 20% and the stock does not pay any dividend. All options have a one-year maturity. In answering the questions below use a binomial tree with three steps. Each step should be one-third of a year. 1)Using the binomial tree, compute the price at time 0 of a one-year European put option on 100 shares of...
Suppose you observe the spot euro at $1.38/€, the U. S. risk-free interest rate of 0.25%...
Suppose you observe the spot euro at $1.38/€, the U. S. risk-free interest rate of 0.25% (continuously compounded), and the European risk-free interest rate of 0.75% (continuously compounded). Identify the theoretical value of a six month foreign exchange futures contract (select the closest answer). a. $1.3815/€ b. $1.3765/€ c. $1.3785/€ d. $1.3825/€ e. $1.3755/€
In currency markets the letters CAD refers the Canadian dollar whereas USD refers to the US...
In currency markets the letters CAD refers the Canadian dollar whereas USD refers to the US dollar. The CAD/USD spot exchange is 1.40. The continuously compounded risk free rate in both countries is 0.25%. The volatility of price changes in the exchange rate is 25%. Using Black-Scholes, determine the price of 1-year European call option (in CAD) to buy USD if the CAD/USD strike is 1.5. a) 0.04 c) 0.08 e) 0.12 b) 0.06 d) 0.10
Suppose you observe the spot euro at $1.50/€, the U. S. risk-free interest rate of 3.25%...
Suppose you observe the spot euro at $1.50/€, the U. S. risk-free interest rate of 3.25% (continuously compounded), and the six month futures price of $1.50/€. Identify the correct implied European risk-free interst rate (select the closest answer). a. –3.25% b. –1.0% c. 0.0% d. 1.0% e. 3.25%
Problem 1.4.2. (Long put vs short forward) You are given: (6) The current price of a...
Problem 1.4.2. (Long put vs short forward) You are given: (6) The current price of a 100-strike 9-month European put option is 12. (ii) A 9-month forward has a forward price of 105 (iii) The continuously compounded risk-free interest rate is 3% Caleulate the stock price after 9 months such that the long put option and the short forward contract have the same profit.
Question 3 (9 marks) Consider the following information about a non-dividend paying stock: The current stock price is $36, and its return standard deviation is 30% per year. The continuous compound risk-free rate is 3% per year. Assume that the Black-Scholes model correctly prices all the options written on the stock given the information above. a). A call option written on the stock expires in 1 year and has an exercise price of $36. Calculate the Black-Scholes value of the...
In currency markets the letters CAD refers the Canadian dollar whereas USD refers to the US dollar. The CAD/USD spot exchange is 1.40. The continuously compounded risk free rate in both countries is 0.25%. The volatility of price changes in the exchange rate is 25%. Using Black-Scholes, determine the price of 1-year European call option (in CAD) to buy USD if the CAD/USD strike is 1.5. a) 0.04 c) 0.08 e) 0.12 b) 0.06 d) 0.10
Problem 1.4.2. (Long put vs short forward) You are given: (6) The current price of a 100-strike 9-month European put option is 12. (ii) A 9-month forward has a forward price of 105 (iii) The continuously compounded risk-free interest rate is 3% Caleulate the stock price after 9 months such that the long put option and the short forward contract have the same profit.
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