Calculate call option value using two-state stock price

Assignment Help Financial Accounting

Reference no: EM131214285

A. You are attempting to value a call option with an exercise price of $102 and 1 year to expiration. The underlying stock pays no dividends, its current price is $102, and you believe it has a 50% chance of increasing to $121 and a 50% chance of decreasing to $83. The risk-free rate of interest is 10%. Calculate the call option’s value using the two-state stock price model.

B. You are attempting to value a call option with an exercise price of $102 and 1 year to expiration. The underlying stock pays no dividends, its current price is $102, and you believe it has a 50% chance of increasing to $121 and a 50% chance of decreasing to $83. The risk-free rate of interest is 12%.Calculate the call option's value using the two-state stock price model.

For Both (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit the "$" sign in your response.)

Reference no: EM131214285

Questions Cloud

Prepare a loan amortization schedule for loan : Determine the annual payment on a $500,000, 12 percent business loan from a commercial bank that is to be amortized over a five-year period. Determine the annual payment on a $15,000 loan that is to be amortized over a four-year period and carries a ..

Equivalent units and comprehensive : Louisville Sports manufactures baseball bats for use by players in the major leagues. A critical requirement for elite players is that each bat they use have an identical look and feel. As a result, Louisville uses a dedicated process to produce bats..

Weighted-average method in comparison to the fifo method : Discuss the concept of equivalent units and how that concept relates to management decision making. Be sure to include information in your discussion about the weighted-average method in comparison to the FIFO method of accounting for work residing i..

Interest expense or revenue from this note transaction : The Masterson Company accepted a $30,000, 120 day, 11% interest bearing note dated December 15, 2007 from one of their customers. The customer eventually paid the note at its maturity value. Based on a 360-day year, what amount should Masterson repor..

Calculate call option value using two-state stock price : You are attempting to value a call option with an exercise price of $102 and 1 year to expiration. The underlying stock pays no dividends, its current price is $102, and you believe it has a 50% chance of increasing to $121 and a 50% chance of decrea..

Compute three ratios after evaluating effect of transaction : Compute the three ratios after evaluating the effect of each transaction that follows. Consider each transaction separately. (

Explain the structure of a water molecule : Explain the structure of a water molecule and how hydrogen bonding leads to some of its very special properties. Be sure to include how these properties are important to life on Earth.

Calculate resulting current i in circuit in its final state : Consider the circuit shown below, with all the switches S1 through S400 initially open. - Calculate the resulting current I in the circuit in its final state.

Calculate mean and variance of total claim amount : The number of claims N in a year has a discrete distribution: Pr[N=k]=0.1(4-k) for k=0,1,2,3. The amount for each claim has mean 300 and variance 30000. The distribution of amount per claim is independent of N. Calculate the mean and variance of t..

User Account

All Pages