Problem 15-11 Put-Call Parity (LO4, CFA1) A call option is currently selling for $4.40. It has a strike price of $55 and six months to maturity. The current stock price is $57 and the risk-free rate is 3.4 percent. The stock will pay a dividend of $2.05 in two months. What is the price of a put option with the same exercise price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price of a put option

Problem 15-11 Put-Call Parity (LO4, CFA1) A call option is currently selling for $4.40. It has a strike price of $55 and six months to maturity. The current stock price is $57 and the risk-free rate is 3.4 percent. The stock will pay a dividend of $2.05 in two months. What is the price of a put option with the same exercise price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price of a put option

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter18: Derivatives And Risk Management

Section18.A: Valuation Of Put Options

Problem 1P

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Question 1 • Springtime Insurance Brokers Ltd. (SIBL) stock is currently selling for $42. A put option on the stock with a value of $3 has an exercise price of $40 and 6 months until expiration. To prevent arbitrage opportunities, what should be the value of a call option with the same strike price and expiration date? Assume that the options are European and that the effective annual risk-free rate is 6%.
Put-Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $31 and with 1 year until expiration has a current value of $5.58. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Do not round intermediate calculations. Round your answer to the nearest cent. $
Question 5: A call option on a stock that expires in a year has a strike price of $99. The current stock price is $100 and the one-year risk free interest rate is 10%. The price of this call is $6. a) Is arbitrage possible? What is the arbitrage position? b) do you het this minimum? Find the minimum arbitrage profit for this strategy. When
Aa.8 A put with 1-year to maturity is written on a stock. The current underlying stock price is $20. The option’s exercise price is $18, the interest rate is 3.74%, and the stock’s volatility is 32.7%. The price of a call written on the same stock with the same exercise price and time to maturity is $4.3. Use BSM pricing to determine if put-call parity holds.
Question 5 Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. What is the price of the option if it is a European call? b. What is the price of the option if it is a European put? c. Verify that put-call parity holds. a.
What is the price of a one-month European call option given the following information: the exercise price is $19, the current share price is $19, and the risk-free interest rate is 1% per month. Furthermore, the share price is expected to be either $25 or $15 at the end of the month. The company does not pay dividends. Assume a risk-neutral world. Group of answer choices $3.11 $1.91 $2.49 $3.32 None of the above answers is correct.
Question 2 (a) Use the Black-Scholes formula to find the current price of a European call option on a stock paying no income with strike 60 and maturity 18 months from now. Assume the 20%, and the constant current stock price is 50, the lognormal volatility of the stock is a = continuously compounded interest rate is r 10% (b) Repeat part (a) for a European put with strike 60 and maturity 18 months from now
QUESTION 1 A one-month European put option on a non-dividend-paying stock is currently selling for $1.5. The stock price is $37, the strike price is $43, and the risk-free interest rate is 5% per annum. What is the minimum arbitrage profit you can make in today's value? (Keep to 2 decimal places)
aa.3 43.3: Consider a chooser option on a stock. The stock currently trades for $50 and pays dividend at the continuously compounded yield of 8%. The choice date is two years from now. The underlying European options expire in four years from now and have a strike price of $45. The continuously compounded risk-free rate is 5% and the volatility of the prepaid forward price of the stock is 30%. Find the delta of the chooser option. [answer:0.1303]
Suppose that an American put option with a strike price of $70.0 and maturity of 4.0 months costs $13.2. The underlying stock price equals 55. The continuously compounded risk-free rate is 8.5 percent per year. What is the potential arbitrage profit from buying a put option on one share of stock? 1.9783 no arbitrage profit available 3.8117 4.2693 1.80
Question 2. You have been asked to value a Arithmetic Lookback option which expires in six months time. At the end of the six months the buyer is paid the arithmetic mean of the underlying stock over the contract period. Using the compressed stock tree presented in Figure 1 and assuming an annual interest rate of 4.5% determine the fair price of the Arithmetic Lookback option. Why are Lookback options considered to he expensive? 182.5 158.7 138 138 120 120 104.4 104.4 90.8 79 Figure 1: Compressed stock tree
Aa.2 A stock price is currently $42. The risk-‐free interest rate is APR 4% with continuous compounding. What is the value of a six-‐month American put option with a strike price of $46 using two-‐step binomial option pricing model? Stock pricemove up by 5% or down by 7% for each three month. Less than $3.0. Larger than $3.0 but less than $3.7. Larger than $3.7 but less than $4.3. Larger than $4.3 but less than $5.0.