User Account

All Pages

Calculate the value of european call option

Assignment Help Finance Basics
Reference no: EM133072213

Consider a European call option on a non-dividend-paying stock with a strike price $145 and expiration in 6 months. The current stock price is $140. The stock's volatility is 10%. Over each of the next two three-month periods, the stock price is expected to go up by 5% or down by 5%. The risk-free interest rate is 5% per annum with continuous compounding for all maturities.

(a) Use a two-step binomial tree to calculate the value of this European call option. Show your step-by-step workings.
Note: No need to draw a binomial tree in the answer field. Just show your calculations.

(b) Use the Black-Scholes-Merton model to calculate the value of this European call option. Show your step-by-step workings.

(c) Compare the results obtained in (a) and (b). Do you expect them to be identical? Why/why not?

Reference no: EM133072213

Questions Cloud

What is the npv of investment : Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $5 million.
Compute design and effective capacity utilization measure : Recently, the production facility has been producing 920 boards per day. Compute the design and effective capacity utilization measures
Variable production costs : Fintech INC is reevaluating its credit policy. Current terms are 2f10, net 30, resulting in annual sales of 800,000 units.
Calculate income taxes currently payable : Income before tax, as shown on HWC's GAAP statement of income = $3,740,000. Calculate Income taxes currently payable
Calculate the value of european call option : Consider a European call option on a non-dividend-paying stock with a strike price $145 and expiration in 6 months. The current stock price is $140.
Standard deviation of the portfolio with share : You have a portfolio with a standard deviation of 28% and an expected return of 19%. You are considering adding one of the two shares in the table below.
What are the cash receipts for March : ABC Company has sales forecasts of the following: January = $40,000; February = $65,000; March = $52,850. What are the cash receipts for March
What is the new value of the? portfolio : You are considering how to invest part of your retirement savings.You have decided to put $500 000 into three? shares: 56% of the money in Minerva?
What is the desired inventory : ABC Company desires ending inventory equal to 20% of the next month's sales. What is the desired inventory

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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