Calculate the stock price using the binomial model

Assignment Help Financial Management

Reference no: EM131868103

Suppose you have a call option on a stock with a strike price of $20.

A) Fill in the stock price and strike price in the table and calculate the exercise value.

B) Plot the Stock price on the x-axis and the Exercise value on the y-axis. Be sure to label both axes with titles and include a chart title.

Now assume you have the following data for a call option:

Current stock price $65.00

Strike price $70.00

Time to expiration .50

Risk-free rate 6%

Stock return standard deviation 50.00%

C) Fill in the components of the Black-Scholes model and calculate d1 and d2.D) Calculate the value of N(d1) and N(d2) using the Excel function and find the value of Vc.

Now use the binomial option pricing model in conjunction with the following data to value a call option:

Current stock price, P = $27.00

Risk-free rate, rRF = 6%

Strike price, X = $25.00

Up factor for stock price, u = 1.41

Down factor for stock price, d = 0.71

Years to expiration, t = 0.50

E) Calculate the stock price using the binomial model and find the option payoff in each case, in addition to the value of NS.

F) Calculate the portfolio payoff in each case and find the present value of the payoff, in addition to the value of the call option.

Reference no: EM131868103

Questions Cloud

Common stock value-constant growth : Common stock value-Constant growth. What required rate of return for this stock would result in a price per share of $24?

The empirical tests of purchasing power parity : Two general conclusions can be made from the empirical tests of purchasing power parity (PPP):

What is the NPV of the project in US dollars : Lakonishok Equipment has an investment opportunity in Europe. What is the NPV of the project in U.S. dollars?

Implied ppp exchange rate is mexican peso : According to Big Mac Index, implied PPP exchange rate is Mexican Peso 8.58/$1 but actual exchange rate is Peso 11.80/$1. Thus, at current exchange rates peso.

Calculate the stock price using the binomial model : Calculate the stock price using the binomial model and find the option payoff in each case, in addition to the value of NS.

The farmers leverage should be increased to this point : What factors should both this farmer and the lender consider when they are deciding on whether the farmers leverage should be increased to this point?

Market research firm has determined that demand for economy : A market research firm has determined that the demand for economy cars drops by 3% when the price of these cars increases by 1%. Based on this information,

Calculate the nzd and usd spot rate in one year time : The Chase Bank currency desk is showing a spot rate of NZD 1.65/USD today. calculate the NZD/USD spot rate in one year’s time,

Reconciliation from financial income to taxable income : Tax depreciation exceeded book depreciation by $40,000. A reconciliation from financial income to taxable income for 2016.

User Account

All Pages