Call option value using the two-sate stock price method

Assignment Help Financial Management
Reference no: EM131840770

You are attempting to value a call option with an exercise price of $100 and one year to expiration. The underlying stock pays no dividends, its current price is $100, and you believe it has a 50% chance of increasing to $120 and a 50% chance of decreasing to $80. The risk-free rate rate of interest is 10%. Based upon your assumptions, calculate your estimate of the call option's value using the two-sate stock price method.

Reference no: EM131840770

Questions Cloud

Discuss the role of reward systems in organizational change : Discuss the role of reward systems in organizational change. Identify where reward systems work and where they undermine the organizational change process.
Credit card application from shady banks savings : You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 3.5 percent per year,
Find the year zero cash flow : Spend 100000 on Machine C. You will need 5000 more in net working capital. Find the year zero cash flow. Find the total CF for each year.
Why would anyone want to murder martin luther king : How was the exercise that Elliott designed a response to the children's question, Why would anyone want to murder Martin Luther King?
Call option value using the two-sate stock price method : calculate your estimate of the call option's value using the two-sate stock price method.
Determine the correctness of the algorithm : Determine the correctness of the algorithm; if it is incorrect, show an example in which one of conditions for the critical-section problem
Internet browsing history : This can be clothes, a bedroom, a written essay, contents in a backpack, a car interior, music playlists, an Internet browsing history, and so on.
Build manpower planner for electrical engineering department : As a start, you were requested to build a Manpower Planner for the Electrical Engineering Department, particularly for its Diploma Program
Coupon rate that is greater than its yield to maturity : A bond with several years to maturity has a coupon rate that is greater than its yield to maturity. The bond will:

Reviews

Write a Review

Financial Management Questions & Answers

  Explain roles of limited liability corporations

Write a 700- to 1,050-word paper in which you explain roles of limited liability corporations, limited liability partnerships, and Class C Corporations. If you were establishing your own business, under what circumstances would you choose one instead..

  What is the present worth cost today

what is the present worth cost today of the $500,000 building purchased three years now when inflation is considered?

  Find the average p and s ratio for these three firms

World Wide Web Wares is an online retailer of small kitchen appliances and utensils. Find the average P/S ratio for these three firms.

  Which investment is preferred and why

You have $10,000 to invest for 5 years and find the following information. Calculate the future value for each option. There are no payments, just a total amount received at maturity. Show your formulas or the inputs you use for your calculations. a)..

  Add an additional production line

The Frank Ernst Co. wants to add an additional production line. To do this, the company must spend $100,000 to expand its current building and purchase $1.2 million in new equipment. T he net working capital requirement is $36,000. Taxes are incurred..

  Steakhouse has budgeted the costs for month

Bubba's Steakhouse has budgeted the following costs for a month in which 1,600 steak dinners will be produced and sold: Materials, $4,080; hourly labor (variable), $5,200; rent (fixed), $1,630; depreciation, $690; and other fixed costs, $440. Each st..

  The stock price after the recap

The firm had 20 million shares before the recap. What is P (the stock price after the recap)?

  With capital budget-company wide return on assets

With a start-up cost of $2, benefits of $5 per year for one year and an internal rate of return of 150.00%. With a capital budget of $9 and a company wide return on assets of 10%, which of these projects would you undertake? What would your answer be..

  What is the future value of annuity payment

What is the future value of a $620 annuity payment over four years if interest rates are 8 percent?

  What is the value of the lump sum

What is the lump sum deposited today at 8% compounded qrtly for 10 years, will yeild the same amount if $4000 deposit with 6% interest end of 6 months compound simi annual, 10 years. What is the value of the lump sum?

  What is the bonds yield to maturity

The bond is currently trading for $900. What is the bond's yield to maturity?

  Consider expanding into various foreign countrires

Recently, JCPenny decided to consider expanding into various foreign countrires; it applied a comprehensive country risk analysis before making its expansion decisions. Identify the political factors that you think may possibly affect the performacne..

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