Calculate that to set up risk free portfolio

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1. A bond with a $100 par value and semi-annual compounding was originally issued with a 6% coupon and ten years to maturity. If it is currently trading for $97.22 and has an 8% APR YTM what is the time left to maturity?

2. A. The current stock price of firm AAa= $20. It is expected that this firm’s stock price will go up by 20%, or it might go down by 20%. No dividends. The one year risk free rate = 5%. A call option’s strike price is also $20. Using the binomial pricing model , calculate that to set up a risk free portfolio, for each call option, how many stocks (or portion of a stock) is needed.

B. Using the binomial pricing model, calculate the price of a one-year call option on this stock with a strike price of $20 is:

Reference no: EM132045208

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