Question

Assume that a stock price is currently at S = $60. It is known that in...

Assume that a stock price is currently at S = $60. It is known that in one year stock price will be either $75 or $45. The annual interest rate is rf = 5%.

Using a one-period binomial tree model, what is the fair price of a European put option with strike price X = 65 and 1 year to maturity?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE. THUMBS UP PLEASE.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume that a stock price is currently at S = $60. It is known that in...
Assume that a stock price is currently at S = $60. It is known that in one year stock price will be either $70 or $50. The annual interest rate is rf = 5%. Using a one-period binomial tree model, what is the fair price of a European call option with strike price  X = 55 and 1 year to maturity? Please include two digits after the decimal point in your answer.  
A stock price is currently $50. It is known that at the end of 3 months...
A stock price is currently $50. It is known that at the end of 3 months it will be either $50 or $48. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a 3-month European put option with a strike price of $49? How about a 6-month European call price? (Hint: 2 period binomial option pricing)
►A stock price is currently $50. It is known that at the end of six months...
►A stock price is currently $50. It is known that at the end of six months it will be either $46 or $54. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a six-month European put option with a strike price of $48? What is the value of a six-month American put option with a strike price of $48?
A stock price is currently $180. It is known that it will be either $207 or...
A stock price is currently $180. It is known that it will be either $207 or $153 at the end of 3 months. The risk-free interest rate is 2% per annum with continuous compounding. What is the value of the 3- month European stock put option (with a strike price of $175)?
Suppose today's stock price of McDonald’s is $150. With probability, 60% the price will rise to...
Suppose today's stock price of McDonald’s is $150. With probability, 60% the price will rise to $175 in one year and with probability, 40% it will fall to $140 in one year. What is the current price of a European call option with one year until maturity with a strike price of $160 if the risk-free rate of interest is 4%? Use a binomial tree.
A stock price is currently $100. Over each of the next two six-month periods, it is...
A stock price is currently $100. Over each of the next two six-month periods, it is expected to go up by 10% or down by 10%. The risk-free interest rate is 10% per year with semi-annual compounding. Part I. Use the two-steps binomial tree model to calculate the value of a one-year American put option with an exercise price of $101. Part II. Is there any early exercise premium contained in price of the above American put option? If there...
1. Luther Industries is currently trading for $28 per share. The stock pays no dividends. A...
1. Luther Industries is currently trading for $28 per share. The stock pays no dividends. A one-year European put option on Luther with a strike price of $30 is currently trading for $2.55. If the risk-free interest rate is 6% per year, compute the price of a one-year European call option on Luther with a strike price of $30. The price of one-year European call option on Luther with a strike price $30 is ______$ (round to four decimal places)....
1. Consider a one-step binomial tree on stock with a current price of $100 that can...
1. Consider a one-step binomial tree on stock with a current price of $100 that can go either up to $115 or down to $85 in 1 year. The stock does not pay dividend and interest rates are zero. Use the tree to compute the value of a 1-year $100-strike European put option on the stock. 2. Suppose you are long 100 contracts on a 1-year 25-put option on AMZN. How much will your option position increase in value if...
PLEASE SOLVE THE B. (Option valuation) A stock price is currently 40€. It is known that...
PLEASE SOLVE THE B. (Option valuation) A stock price is currently 40€. It is known that at the end of 1 month it will be either 42€ or 38€. The risk-free interest rate is 8% per annum with continuous compunding. a. What is the value of a 1-month European call option with a strike price of 39€? = 1,69€ b. USE PUT-CALL PARITY TO SOLVE THE VALUATION OF THE CORRESPONDING PUT OPTION.
Consider a one-step binomial tree on stock with a current price of $100 that can go...
Consider a one-step binomial tree on stock with a current price of $100 that can go either up to $115 or down to $85 in 1 year. The stock does not pay dividend and interest rates are zero. Use the tree to compute the value of a 1-year $100-strike European put option on the stock.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT