Question

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 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)?

3- 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)?

4- A European call and a European put on the same stock have the exact same strike price and the exact same expiration. At 10:00am on a certain day, the call option premium is $3.25 and the put option premium is $4.25. At 10:01am news reaches the market that no effect on the stock price or on interest rates, but it does increase volatilities. As a result, the call premium increases to $4.00. What is the new put premium (out to two decimal places)?

Answer #1

From the put call parity equation

c+ K/(1+r)^t = p+S

where c and p are call and put option premiums respectively

K is the strike price of the options

, r is the periodic interest rate

and t is the no. of periods

, S is the spot price of stock

For no arbitrage, the put-call parity must hold

S = 75+55/1.1-100 =$25

**No arbitrage price of Stanley's stock is
$25**

**(It may be noted that European Put option cannot trade
above present value of strike price ie. $50, Also European call
option cannot trade above current stock price i,e,
$25)**

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 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)?

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)....

There is a six month European call option available on XYZ stock
with a strike price of $90. Build a two step binomial tree to value
this option. The risk free rate is 2% (per period) and the current
stock price is $100. The stock can go up by 20% each period or down
by 20% each period.
Select one:
a. $14.53
b. $17.21
c. $18.56
d. $12.79
e. $19.20

Suppose that a 6-month European call A option on a stock with a
strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
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maturities) are 10% per annum with continuous compounding.
Use put-call parity to explain how would you construct a
European...

The price of a European call option on a non-dividend-paying
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European put option on the stock with a strike price of $50?
a)$9.91
b)$7.00
c)$6.00
d)$2.09

A
European call option and put option on a stock both have a strike
price of $20 and an expiration date in three months. Both sell for
$3. The risk-free interest rate is 10 % per aunum, the current
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identify the arbitrage oppotunity to a trader.

For a European call option and a European put option on the same
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the following is true?
A) Before expiration, only in-the-money options can have
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B) If you have a portfolio of protected put, you can replicate
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C) Since both the call and the put are risky assets, the
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For a European call option and a European put option on the same
stock, with the same strike price and time to maturity, which of
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A) When the call option is in-the-money and the put option is
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B) The buyer of the call option receives the same premium as the
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C) Since both the call and the put are risky...

A
European call option and put option on a stock both have a strike
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