Calculate the price of a 3-month put option

Assignment Help Finance Basics
Reference no: EM133002205

The price of IDO stock is currently $80. In the first quarter, the price either increases 30% or decreases 25%. In the second quarter, the price either rises by $20 or falls by $20 if price increases in the first quarter and rises by $25 or falls by $25 if price decreases in the first quarter. The risk-free interest rate is 4% per quarter.

a)Using the replication portfolio approach, calculate the price of a 3-month put option that has an exercise price of $80.

b)Using the risk neutral probability approach, calculate the price of a 6-month call option that has an exercise price of $75.

Reference no: EM133002205

Questions Cloud

What action should be taken with respect to supplies budget : Supplies have a variable cost behavior pattern, what action should be taken with respect to the supplies budget when the actual enrollment is known.
Effects ?om the mark-to-market rule : Li Ping Sledges has today invested in a ISO-day bank bill with a face value of $10 million, priced to yield 3 .25 per cent per annum. Simultaneously she has sol
Tenet of semi-strong-form efficiency : 1.If you invest in two stocks, and their values both rise on one day and then fall on the next day, they have __________.
Find what is best guess for the rate of return on the stock : A stock with a beta of 1 on IP and 0.8 on IR currently is expected to provide a rate of return of 16%, what is best guess for the rate of return on the stock?
Calculate the price of a 3-month put option : The price of IDO stock is currently $80. In the first quarter, the price either increases 30% or decreases 25%. In the second quarter, the price either rises by
Compute the value of a six-month european call option : It is known that at the end of six months it will be either 47.73 or 39.56. The risk-free interest rate is 4% per annum with continuous compounding.
Create the journal entries to record each of the transaction : Create the journal entries to record each of the above transactions. Sold $1,146 of merchandise to Andrew Noren on account, terms n/30.
Estimating the current share price : XYZ Ltd. common stock is expected to have extraordinary growth of 15% per year for two years, at which time the growth rate will settle into a constant 8%.
Prorate the given expenses to find the monthly cost : Prorate the given expenses to find the monthly cost. Mike has an annual expense of $846 for life insurance, a semi-annual car insurance premium of $750

Reviews

Write a Review

Finance Basics Questions & Answers

  Exchange rates fluctuate under both the fixed exchange rate

exchange rates fluctuate under both the fixed exchange rate and floating exchange rate systems. what then is the

  What is the car total cost

Suppose that the local sales tax rate is 4% and you purchase a car for $22,800.

  Company weighted average cost of capital

What is the company's weighted average cost of capital. Use the dividend discount model. Show calculations

  Determine expected price of the stock

Graham Enterprises anticipates that its dividend at the end of the year will be $2 a share. The dividend is expected to grow at a constant rate of 7% a year.

  Assume that you have 165000 invested in a stock whose beta

assume that you have 165000 invested in a stock whose beta is 1.25 85000 invested in a stock whose beta is 2.35 and

  What is the value of a 3-year

What is the value of a 3-year, risk-free bond with a coupon rate of 4% (annual coupons) and a face amount of $1,000?

  What is the clinics average net float

On a typical day, Park Place Clinic writes $1,000 in checks. It generally takes four days for those checks to clear. Each day the clinic typically receives $1,000 in checks that take three days to clear. What is the clinics average net float?

  What is the total expected depreciation expense

What is the total expected depreciation expense for these two machines in 2013?

  Calculate the apr for federal truth-in-lending purposes

Calculate the APR for federal truth-in-lending purposes.

  What do you expect to happen to long term bonds yields

The current rate of inflation is 3% and the long term Treasury bonds are yielding 7%. You estimate that the rate of inflation will increase to 6%.

  Discount and compounding rate

Calculate a modified IRR for this project assuming a discount and compounding rate of 10.4% Using the MIRR and a cost of capital of 10.4%, would you take the project?

  Prepare the restaurant pro forma income statement

A financial feasibility study is being carried out for a proposed new 120- seat restaurant. It will be open for both lunch and dinner from Monday.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd