The current price of Estelle Corporation stock is $29.00. In each of the next two years, this stock price will either go up by 21% or go down by 21%. The stock pays no dividends. The one-year risk-free interest rate is 6.5% and will remain constant. Using the Binomial Model, calculate the price of a one-year put option on Estelle stock with a strike price of $29.00
Using the Binomial Model; Payoff table of Put option with strike price of $29:
Price after one year |
Value of put option [Strike price ($29) – price] |
||
Move up (u=35.09/29= 1.21) |
$29 *1.21 = $35.09 |
$0 (price at the strike price so option will not exercise) |
|
Current Price of stock($29) |
|||
Move down (d=22.91/29 =0.79) |
$29 *(1-0.21) = $22.91 |
$6.09 |
Probability of moving up, P = e ^r*t – d / (u-d)
Where
Risk free rate, r = 6.5% per year or 0.065
Time period, t = 1 year
Factor of moving up, u = 1.21
Factor of moving down, d = 0.79
Therefore,
P = [e^ (0.065*1) – 0.79] / (1.21 -0.79)
P = 0.6599
And (1- P) = 1- 0.6599 = 0.3401 (probability of moving down)
Now the expected value of put option
= e^ - (0.065*1) * (1-P) * payoff of put option
= 0.9371 *0.3401 *$6.09
= $1.94
Therefore the value of the put option is $1.94
The current price of Estelle Corporation stock is $29.00. In each of the next two years,...
The current price of Estelle Corporation stock is $ 28.00 In each of the next two years, this stock price will either go up by 21% or go down by 21%. The stock pays no dividends. The one-year risk-free interest rate is 7.6% and will remain constant. Using the Binomial Model, calculate the price of a one-year put option on Estelle stock with a strike price of $28.00.
The current price of Estelle Corporation stock is $28.00. In each of the next two years, this stock price will either go up by 24% or go down by 24%. The stock pays no dividends. The one-year risk-free interest rate is 7.6% and will remain constant. Using the Binomial Model, calculate the price of a one-year put option on Estelle stock with a strike price of $28.00. The price of the one-year put option is $ . (Round to the...
The current price of Estelle Corporation stock is $ 30.00. In each of the next two years, this stock price will either go up by 23 % or go down by 23 %.The stock pays no dividends. The one-year risk-free interest rate is 7.6 % and will remain constant. Using the Binomial Model, calculate the price of a one-year put option on Estelle stock with a strike price of $ 30.00. The price of the one-year put option is $_____(Round...
The current price of Estelle Corporation stock is $22.00. In each of the next two years, this stock price will either go up by 18% or go down by 18%. The stock pays no dividends. The one-year risk-free interest rate is 9.0% and will remain constant. Using the Binomial Model, calculate the price of a one-year call option on Estelle stock with a strike price of $22.00. The price of the one-year call option is $ . (Round to to...
The current price of Estelle Corporation stock is $ 23.00 In each of the next two years, this stock price will either go up by 18 % or go down by 18 %. The stock pays no dividends. The one-year risk-free interest rate is 8.0 % and will remain constant. Using the Binomial Model, calculate the price of a one-year call option on Estelle stock with a strike price of $ 23.00
The current price of Estelle Corporation stock is $ 23.00. In each of the next two years, this stock price will either go up by 16 % or go down by 16 %. The stock pays no dividends. The one-year risk-free interest rate is 8.0 % and will remain constant. Using the Binomial Model, calculate the price of a one-year call option on Estelle stock with a strike price of $ 23.00. The price of the one-year call option is...
(PLEASE SHOW ALL WORK) The current price of Estelle Corporation stock is $25.00. In each of the next two years, this stock price will either go up by 21% or go down by 21%. The stock pays no dividends. The one-year risk-free interest rate is 7.6% and will remain constant. Using the Binomial Model, calculate the price of a one-year put option on Estelle stock with a strike price of $25.00. The price of the one-year put option is $...
The current price of Estelle Corporation stock is $ 25.00. In each of the next two years, this stock price will either go up by 23 % or go down by 23 %. The stock pays no dividends. The one-year risk-free interest rate is 5.3 % and will remain constant. Using the Binomial Model, calculate the price of a one-year put option on Estelle stock with a strike price of $ 25.00.
A Show Work 5 Question Help The current price of Estelle Corporation stock is $23.00. In each of the next two years, this stock price will either go up by 20% or go down by 20%. The stock pays no dividends. The one-year risk-free interest rate is 8.6% and will remain constant. Using the Binomial Model, calculate the price of a one-year put option on Estelle stock with a strike price of $23.00 The price of the one-year put option...
(please show all work) The current price of Estelle Corporation stock is $23.00. In each of the next two years, this stock price will either go up by 19% or go down by 19%. The stock pays no dividends. The one-year risk-fre 7.0% and will remain constant. Using the Binomial Model, calculate the price of a one-year call option on Estelle stock with a strike price of $23.00. The price of the one-year call option is $ . (Round to...