Question

Let S = $65, r = 3% (continuously compounded), d = 5%, s = 30%, T...

Let S = $65, r = 3% (continuously compounded), d = 5%, s = 30%, T = 2. In this situation, the appropriate values of u and d are 1.32313 and 0.72615, respectively. Using a 2-step binomial tree, calculate the value of a $55-strike European call option.
Answers: a.

$14.416
b.

$14.291
c.

$13.458
d.

$13.868
e.

$14.519
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

here , S0 = current stock price

Su = stock price after 1 year if stock price increases

Sd = stock price after 1 year if stock price decreases

Suu = stock price after 2 years if stock price increases

Sdd = stock price after 2 years if stock price decreases

Sud = stock price after 2 years if stock price after 1 year increases and in the 2nd year it decreases

fu = value of option after 1 year if stock price increases

fd = value of option after 1 year if stock price decreases

fuu = value of option after 2 years if stock price increases

fdd = value of option after 2 years if stock price decreases in both years

fud = value of option after 2 years if stock price increases after 1st year and decreases after 2nd year

f = value of option today

hence the correct option is c) 13.458

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
post all the steps Let S = $45, r = 7% (continuously compounded), d = 1%,...
post all the steps Let S = $45, r = 7% (continuously compounded), d = 1%, s = 25%, T = 2. In this situation, the appropriate values of u and dare 1.36343 and 0.82696, respectively. Using a 2-step binomial tree, calculate the value of a $50-strike European put option. a. $6.702 b. $6.076 c. $5.282 d. $5.227 e. $5.666
Let S = $75, r = 8% (continuously compounded), d = 5%, s = 40%, T...
Let S = $75, r = 8% (continuously compounded), d = 5%, s = 40%, T = 2. In this situation, the appropriate values of u and d are 1.53726 and 0.69073, respectively. Using a 2-step binomial tree, calculate the value of an $80-strike American put option? Correct answer is 15.656. Can you show steps how to solve it without excel? Thank you!
1a) Let S = $50, K = $55, r = 8% (continuously compounded), T = 0.25,...
1a) Let S = $50, K = $55, r = 8% (continuously compounded), T = 0.25, and d = 0. Let u = 1.25, d = 0.7, and n = 1. What are D and B for a European put? Answers: a. D = –0.5055; B = 48.6981 b. D = –0.6640; B = 34.3515 c. D = –0.9695; B = 48.6535 d. D = –0.7273; B = 44.5545 e. D = –0.5607; B = 48.2080 1b) Let S =...
Let S = $70, K = $65, r = 6% (continuously compounded), d = 1%, s...
Let S = $70, K = $65, r = 6% (continuously compounded), d = 1%, s = 30%, and T = 2. What are the appropriate values of u and d to build a 3-period binomial stock price tree? (Use the formulas from the main part of the chapter and lecture notes, not the alternative formulas in the appendix.) EDIT: This question does not need anymore information, everything I have written is all that was provided. Please do not answer...
Let S = $65, s = 43%, r = 5.5%, and d = 2.5% (continuously compounded)....
Let S = $65, s = 43%, r = 5.5%, and d = 2.5% (continuously compounded). Compute the Black-Scholes price for a $70-strike European call option with 3 months until expiration. Correct answer is $3.77 How do you solve with steps? No excel please.
Let S = $64, s = 45%, r = 5%, and d = 2.5% (continuously compounded)....
Let S = $64, s = 45%, r = 5%, and d = 2.5% (continuously compounded). Compute the Black-Scholes price for a $60-strike European put option with 9 months until expiration. Correct answer is $7.02 What are the steps to solve it? No excel please.
Let S = $58, s = 29%, r = 6%, and d = 3% (continuously compounded)....
Let S = $58, s = 29%, r = 6%, and d = 3% (continuously compounded). Compute the Black-Scholes price for a $50-strike European put option with 9 months until expiration. Answer= $1.92 Please show all the work to get that answer. Thanks
A stock index is currently 1,500. ITs volatility is 18% per annum. The continuously compounded risk-free...
A stock index is currently 1,500. ITs volatility is 18% per annum. The continuously compounded risk-free rate is 4% per annum for all maturities. (1) Calculate values for u,d, and p when a six-month time step is used. (2) Calculate the value a 12-month American put option with a strike price of 1,480 given by a two-step binomial tree.
For A 6-month European call option on a stock, you are given: (1) The stock price...
For A 6-month European call option on a stock, you are given: (1) The stock price is 150. (2) The strike price is 130. (3) u=1.3u=1.3 and d=0.7d=0.7. (4) The continuously compounded risk-free rate is 6%. (5) There are no dividends. The option is modeled with a 2-period binomial tree. Determine the option premium.
A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per...
A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per annum for all maturities and the dividend yield on the index is 2.5% (both continuously compounded). Calculate values for u, d, and p when a 6-month time step is used. What is value of a 12-month European put option with a strike price of 1,480 given by a two-step binomial tree? In the question above, what is the value of a 12-month American put...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT