Question

The stock price of bravo corp. is curently 135$. The stock price a year from now...

The stock price of bravo corp. is curently 135$. The stock price a year from now will be either $215 or $80 with equal opportunity. The risk free rate is 3%. Using binomial OPM, the value a put option with a price of $170 and an expiration date 1 year from now should be ______ today.

Answer choices:

a.) 52.37

b.) $34.33

c.) 43.28

d.) $49.18

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Homework Answers

Answer #1

Value of upper bound = 170 - 215 = 0 _ _ _(As Premium amount can not be negative)

Value of Lower Bound = (170 - 80) probability * e ^ -(r*t)

= 90* 0.5 * e^ -0.03*1

= 45 * e^-0.03  

= 45 * 0.97044553354

= 43.28

Value of Put = 0+43.28 = 43.28

Premium = 43.28

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