Question

The current stock price of firm AAa= $20. It is expected that this firm’s stock price will go up by 20%, or it might go down by 20%. No dividends. The one year risk free rate = 5%. A call option’s strike price is also $20. Using the binomial pricing model , calculate that to set up a risk free portfolio, for each call option, how many stocks (or portion of a stock) is needed. 22. Using the binomial pricing model, calculate the price of a one-year call option on this stock with a strike price of $20 is:

Answer #1

The current price of MB Industries stock is $20 per share. In
the next year the stock price will either go up to $24 per share or
go down to $16 per share. MB pays no dividends. The one year
risk-free rate is 5 percent and will remain constant. Using the
one-step binomial pricing model, what is the price of a one-year
CALL option on MB stock with a strike price of $20 (out to two
decimal places)?

The current price of Estelle Corporation stock is $ 21.00
$21.00. In each of the next two years, this stock price will
either go up by 20 % 20% or go down by 20 % 20%. The stock pays no
dividends. The one-year risk-free interest rate is 8.0 % 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 $ 21.00 $21.00. The price of...

The current price of MB Industries stock is $20 per share. In
the next year the stock price will either go up to $24 per share or
go down to $16 per share. MB pays no dividends. The one year
risk-free rate is 5 percent and will remain constant. Using the
one-step binomial pricing model, what is the price of a one-year
PUT option on MB stock with a strike price of $20
(out to two decimal places)?

The current price of a stock is $20, and at the end of one year
its price will be either $10 or $30. Theannual risk-free rate is
6%, based on daily compounding. A one-year call option on the
stock, with an exercise price of $16, is available. Based on the
binomial model, what is the option’s value?

The current price of Natasha Corporation stock is $6.28. In each
of the next two years, this stock price can either go up by $2.50
or go down by $2.00. The stock pays no dividends. The one-year
risk-free interest rate is 3.2% and will remain constant. Using the
Binomial Model, calculate the price of a two-year call option on
Natasha stock with a strike price of $7.00.

The current price of Natasha Corporation stock is $ 5.97 $5.97.
In each of the next two years, this stock price can either go up
by $ 2.50 $2.50 or go down by $ 2.00 $2.00. The stock pays no
dividends. The one-year risk-free interest rate is 3.7 % 3.7% and
will remain constant. Using the Binomial Model, calculate the
price of a two-year call option on Natasha stock with a strike
price of $ 7.00 $7.00. The price of...

1- A one-year European call option on Stanley Industries stock
with a strike price of $55 is currently trading for $75 per share.
The stock pays no dividends. A one-year European put option on the
stock with a strike price of $55 is currently trading for $100. If
the risk-free interest rate is 10 percent per year, then what is
the current price on one share of Stanley stock assuming no
arbitrage?
2- The current price of MB Industries stock...

The current price of Natasha Corporation stock is $5.17. In each
of the next two? years, this stock price can either go up by $2.50
or go down by $2.00. The stock pays no dividends. The? one-year
risk-free interest rate is 4.4% and will remain constant. Using the
Binomial? Model, calculate the price of a? two-year put option on
Natasha stock with a strike price of $7.00.

The current price of Rock Pound Corporation stock is $10. In the
next year, this stock price can either increase by 20% or decrease
by 10% every six months. Rock Pound pays no dividends. The
effective semi-annual risk free interest rate is 2%, which will
remain constant forever. Using the risk neutral binomial model,
calculate the price of a one-year European call option on Rock
Pound stock with a strike price of $10

Assume a one-period (annual) binomial model with the following
characteristics: current stock price is $25, the up factor for each
period is 1.05, the down factor for each period is 0.95, and the
risk-free rate is 3 percent.
(a) (4 pts) Draw the binomial tree for the stock with the
appropriate pricing.
(b) (2 pts) What is the current hedge ratio for a European call
for that stock if it has a strike price of $22 and will expire in...

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