Question

J-Rata Corp shares are currently trading at $30 each. It is expected to increase by 10%...

  1. J-Rata Corp shares are currently trading at $30 each. It is expected to increase by 10% or decrease by 6% during the next two-three months. If its strike price at maturity in six months is set as $32 and the risk free rate is 8% per annum for all maturities:

  1. calculate its call options price and its put option price currently.

  1. Test and prove that the put-call parity is holding based on your option pricing.

Homework Answers

Answer #1

PLEASE LIKE THE ANSWER IF YOU FIND IT HELPFUL OR YOU CAN COMMENT IF YOU NEED CLARITY / EXPLANATION ON ANY POINT.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A stock price is currently 100. Over each of the next to six months periods it...
A stock price is currently 100. Over each of the next to six months periods it is expected to go up by 10% or down by 10%. the risk free interest rate is 8% per annum. What is the value of the European call and put options with a strike price of 100? Verify that the put call parity is satisfied.
q 19 A non-dividend paying stock is currently trading at $60 and its volatility is 30%...
q 19 A non-dividend paying stock is currently trading at $60 and its volatility is 30% per annum. Risk free rate is 12% per annum. Consider a European put option with a strike price of $59 that will expire in three months. What is the price of this put option based on Black-Scholes model? (Enter your answer in two decimals without $ sign)
Imagine that both Microsoft stock (MSFT) and Facebook stock (FB) are currently trading at 20 USD/share....
Imagine that both Microsoft stock (MSFT) and Facebook stock (FB) are currently trading at 20 USD/share. The price volatility of MSFT is significantly lower than that of FB. A call option on MSFT with a strike price of 20 USD and a time to maturity of 3 months is trading at a premium of 1.5 USD. Which of the following call options on FB could possibly be trading at the same price as the option on MSFT? A. Call option...
Ricardo initially bought call option on shares of UCV Corp. on September 11th, 2020, with 3...
Ricardo initially bought call option on shares of UCV Corp. on September 11th, 2020, with 3 months maturity. At the time, the shares were trading at $9.57 per share, the call premium was $0.50 and the strike price was $10.02. On the maturity date of the option, the shares of UCV Corp. are now trading at $11.55. The profit on the option strategy is...
Answer the following 10 True or False questions by filling in your answers in the table...
Answer the following 10 True or False questions by filling in your answers in the table provided at the end of this section. Each correct answer will be awarded 2 marks. A stock is trading at $100. A call option on the stock with a maturity of three months is trading at $6.60 and has a delta of 0.7. If the stock price increases to 101, the new call price will be exactly $6.20. In Black-Scholes option pricing model, the...
Suppose that a 6-month European call A option on a stock with a strike price of...
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 is $73 with a volatility of 15%. Risk-free interest rates (all maturities) are 10% per annum with continuous compounding. Use put-call parity to explain how would you construct a European...
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)....
The stock of Network Communication Corp. (NCC) is currently traded at $50 on the market. Assume...
The stock of Network Communication Corp. (NCC) is currently traded at $50 on the market. Assume the stock price has a lognormal distribution. The expected return from the stock is 15 percent per annum and its volatility is 25 percent per annum. What is the probability that a European call option on NCC stock with a strike price of $52 and a maturity of 3 months will be in-the-money at the maturity date?
38. Calvin Industries is currently trading for $27 per share. The stock pays no dividends. A...
38. Calvin Industries is currently trading for $27 per share. The stock pays no dividends. A one-year European put option on Calvin with a strike price of $30 is currently trading for $2.60 and a one-year European call option on Calvin with the same strike price and remaining time to maturity as the European put is trading for $1.30. The annual risk-free rate comes closest to: A) 5.7%. B) 5.8% C) 5.9% D) 6% Ans: D
ABC stock is currently trading at $100. In the next period, the price will either go...
ABC stock is currently trading at $100. In the next period, the price will either go up by 15% or down by 10%. The risk-free rate of interest over the period is 5%. Consider a call and a put option with $100 strike price with one-year maturity. Which of the following statement is false based on one period binomial option pricing model? choices: The synthetic call would include borrowing $48.86 at risk-free rate The synthetic put would include investing $41.62...