Question

Assume the exercise price is PKR60, the risk- free rate is 4%, and the expiration is nine months, so T = 9/12 = 0.75. Consider two cases: Underlying: S0 = PKR 70 and 50. Compute minimum price and maximum price for call and put.

Answer #1

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The current price of a stock is $50 and the annual risk-free
rate is 6 percent. A call option with an exercise price of $55 and
one year until expiration has a current value of $7.20. What is the
value of a put option (to the nearest dollar) written on the stock
with the same exercise price and expiration date as the call
option? (Use put-call parity)

A European put option has an exercise price of £100. It has one
year to expiration. The underlying stock does not pay any dividends
and has a current price of £90. This price has a 50% chance of
increasing to £110 and a 50% chance of decreasing to £70. The risk
free rate of interest is 1% p.a. Calculate the price of the put
option using the two state stock price model applying the
replicating portfolio method.

A call option with an exercise price of $110 has six months to
the expiration date.
Currently, the stock is sold at a price of $120. At the expiration
date, the underlying stock has
two possible ending prices: $150 or $105. The risk-free rate of
return is 8 percent per annum.
Calculate the price of this call option using binomial option
pricing model.

GIVEN:
Spot price = $50
Strike Price = $54
Time to expiration = 6 months
Risk Free rate = 3%
Variance = 22% (use for volatility)
FIND:
Price of a European Put option
Price of a European Call option
Show work and formula

A European-style put option on Cyan Inc. with three months
until expiration and an exercise price of $55 is trading at $2.85.
A forward contract on Cyan stock with three months until expiration
has a forward price of $58.43 and the risk-free rate is 3%. What is
the no-arbitrage price of a European-style call on Cyan stock with
three months until expiration and an exercise price of $55? (2
points)

The strike price for a European call and put option is $56 and
the expiration date for the call and the put is in 9 months. Assume
the call sells for $6, while the put sells for $7. The price of the
stock underlying the call and the put is $55 and the risk free rate
is 3% per annum based on continuous compounding. Identify any
arbitrage opportunity and explain what the trader should do to
capitalize on that opportunity....

Call options with an exercise price of $125 and one year to
expiration are available. The market price of the underlying stock
is currently $120, but this market price is expected to either
decrease to $110 or increase to $130 in a year's time. Assume the
risk-free rate is 6%. What is the value of the option?

A call option with an exercise price of $40 and three months to
expiration has a price of $4.10. The stock is currently priced at
$39.80, and the risk-free rate is 4 percent per year, compounded
continuously. What is the price of a put option with the same
exercise price? (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
Put option price= __________

You are attempting to value a call option with an exercise price
of $55 and one year to expiration. The underlying stock pays no
dividends, its current price is $55, and you believe it has a 50%
chance of increasing to $85 and a 50% chance of decreasing to $25.
The risk-free rate of interest is 6%. Based upon your assumptions,
calculate your estimate of the the call option's value using the
two-state stock price model. (Do not round intermediate...

4. Use the following inputs: (1) current stock price is $50, (2)
exercise price is $45, (3) time to expiration is 3 months, (4)
annualized risk-free rate is 6%, and (5) variance of stock return
is 0.20.
a. find the call value
b. find the put value

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