Binomial model-the price of call option on the stock

Assignment Help Financial Management

Reference no: EM131305089

1. Binomial Model

The current price of a stock is $21. In 1 year, the price will be either $27 or $15. The annual risk-free rate is 6%. Find the price of a call option on the stock that has a strike price is of $25 and that expires in 1 year. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume 365-day year. Do not round your intermediate calculations.

2. Binomial Model

The current price of a stock is $16. In 6 months, the price will be either $19 or $11. The annual risk-free rate is 3%. Find the price of a call option on the stock that has a strike price of $14 and that expires in 6 months. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume a 365-day year. Do not round your intermediate calculations.

Reference no: EM131305089

Questions Cloud

Difference between stock exchange and stock index : Which of the following statements correctly identifies a difference between a stock exchange and a stock index?

Define the asset and liability and shareholders equity : "We can think of a bank's liabilities as the sources of its funds, and we can think of a bank's assets as the uses of its funds." Briefly explain what this means.

Program that computes and outputs the nth fibonacci number : The Fibonacci sequence starts 1, 1, 2, 3, 5, 8, . . .. Each number in the sequence (after the first two) is the sum of the previous two. Write a program that computes and outputs the nth Fibonacci number, where n is a value entered by the user.

Explain cultural values and ideals that art works reflect : Identify the cultural values and ideals that these art works reflect for each society. From this comparison, suggest a modern situation of artistic expression and the ways it reflects or counters prevailing cultural values.

Binomial model-the price of call option on the stock : The current price of a stock is $21. In 1 year, the price will be either $27 or $15. The annual risk-free rate is 6%. Find the price of a call option on the stock that has a strike price is of $25 and that expires in 1 year.

Define the nontransaction deposits and bank capital : Define the Nontransaction deposits, Borrowings, Reserves and Bank capital from a bank's balance sheet.- How have the types of loans banks make changed over time?

The nobel prize winning modigliani and miller theory : The Nobel Prize winning Modigliani and Miller Theory states that a firm’s capital structure does not matter. It is based on three key assumptions:

Time value of money adapted-discounting and compounding : Time Value of Money Adapted from Chapter 5 Mini-Case in Foundations of Finance Your task this week is to teach Grammy and the board the time value of money and its related concepts. She would like you to address several specific questions to demonstr..

Purchase significant amounts of stock in the companies : If commercial banks were allowed to purchase significant amounts of stock in the companies to which they make loans, would this increase or decrease the extent of moral hazard in the financial system? Briefly explain.

User Account

All Pages