Calculate value the option using a two step tree

Assignment Help Financial Accounting
Reference no: EM132919651

Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is six months.

Question 1: Calculate and for a two step tree

Question 2: Value the option using a two step tree.

Question 3: Verify that DerivaGem gives the same answer

  • Use DerivaGem to value the option with 5, 50, 100, and 500 time steps.

Reference no: EM132919651

Questions Cloud

Make the necessary journal entries for the equipment on june : Make the necessary journal entries for the equipment on 30 June 2021. In the previous year, Kbar Ltd had revalued this equipment to a fair value of $70 000.
What is the value of a four-month european put option : A stock price is currently $80. What is the value of a four-month European put option with a strikeprice of $80? Use no-arbitrage arguments.
Classify the events as either adjusting or non adjusting : Classify the above events as either adjusting or non adjusting events after the end of the reporting period. justify your classification
Analysis of the transaction process system of abc limited : Evaluating the systems development methodologies and the role of accountants in system development projects - analysing the role of ethics
Calculate value the option using a two step tree : Calculate Value the option using a two step tree. Consider a European call option on a non-dividend-paying stock where the stock price is $40
Should companies cannibalize the products : What should a marketer consider when determining whether a product is suited to mass customization? Should companies cannibalize their own products?
What is the loss to the financial institution : What is the loss to the financial institution? Assume that six-month LIBOR was 3% per annum halfway through year 3 and that at the time of default
Discuss the qualities of a good research : Discuss the qualities of a good research.
Prepare the necessary journal entry for impairment loss : Hot Ltd determined that due to a downturn, Prepare the necessary journal entry for impairment loss on the Travel Products Division Ltd's as at 30 June 2021.

Reviews

Write a Review

Financial Accounting Questions & Answers

  How much interest has Lawson earned

Question - Lawson opened a savings account 24 years ago with a deposit of $4,169.06. How much interest has Lawson earned

  How much is the total expense to be recognized for year one

What is the noncurrent portion of the lease liability at the end of year one? How much is the total expense to be recognized for year one?

  What is the equity in earnings of cake

Calculate gross profit in percentage and gross profit for remaining year-end inventory. What is the "equity in earnings of Cake".

  How much pre-tax income would the discounted fare provide

Additional monthly advertising cost would be $ 180,000. How much pre-tax income would the discounted fare provide Springfield Express if the company has 50 passenger train cars per day, 30 days per month?

  Compare the two options by preparing the pro forma statement

Compare the two options by preparing the pro forma statement of financial position for the year 2019. Identify any problem experienced by Serena

  Record the adjustment for supplies

Hurricane begins the year with $850 in supplies. During the year, the company purchases $4,200 in supplies and debits that amount to Supplies. At year-end, supplies costing $2,200 remain on hand. Record the adjustment for supplies.

  What was the interest expense

INCOME STATEMENT Little Books Inc. recently reported $3 million of net income. Its EBIT was $6 million, and its tax rate was 40%. What was its interest expense?

  Remaining amount due was paid within the discount period

A business purchased merchandise for $12,000 on account; terms are 2/10, n/30. If $2,000 of the merchandise was returned and the remaining amount due was paid within the discount period, the purchase discount would be:

  Assess the volatility risk with investment in a derivative

Assess the volatility risk with an investment in a derivative, using an interest rate cap or floor in today's marketplace. Indicate whether or not would advice.

  What was the fair value of consideration paid

What are the components of acquisition costs, e.g. cash consideration and noncash consideration? What was the fair value of consideration paid?

  What interest rate was applied

No payments will be made until the bond matures in March 1, 2031, in which time it will be redeemed for USD1,000? What interest rate was applied

  How much suspended loss can be taken on mr mapp final

John Mapp dies with passive activity property having an adjusted basis of $50,000, suspended losses of $20,000, and a fair market value at the date of Mr. Mapp's death of $77,000. How much suspended loss can be taken on Mr. Mapp's final Form 1040..

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