Consider a european call option on a non-dividend-paying

Assignment Help Finance Basics
Reference no: EM13380556

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.

a. Calculate u, d, and p for a two-step tree.

b. Value the option using a two-step tree.

c. Verify that DerivaGem gives the same answer.

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

Reference no: EM13380556

Questions Cloud

Over the past three years year 1 to year 3 the stocks of : over the past three years year 1 to year 3 the stocks of two companies one plc and two plc generated annual returns to
A zero coupon bond with 100 face value is redeemable at par : a zero coupon bond with 100 face value is redeemable at par in exactly four years. you see from financial times that
1 calculate the annualized forward premium or discount on : 1. calculate the annualized forward premium or discount on six-month forward yen.2. if you are planning to go to japan
An exchange rate is currently 08000 the volatility of the : an exchange rate is currently 0.8000. the volatility of the exchange rate is quoted as 12 and interest rates in the two
Consider a european call option on a non-dividend-paying : consider a european call option on a non-dividend-paying stock where the stock price is 40 the strike price is 40 the
Question 1a stock price is currently 100 it is known that : question 1a stock price is currently 100. it is known that in one year it will be either 146 or 80. the risk-free rate
Problem 1winston clinic is evaluating a project that costs : problem 1winston clinic is evaluating a project that costs 52125 and has expected net cash flows of 12000 peryear for
Problem 1what pairing of options would come closest to : problem 1what pairing of options would come closest to achieving the same risk management attributes of a eurusd six
You have a 10 million dollar budget allocated to you by the : you have a 10 million dollar budget allocated to you by the city manager and can get up to 100 matching federal funds

Reviews

Write a Review

Finance Basics Questions & Answers

  What percentage of companys capital structure consists

What percentage of the company's capital structure consists of debt? Round your answer to two decimal places.

  Does xyz take to pay for its purchases

The XYZ Company has annual average purchases of $200,000 and an ending accounts payable balance of $36,000. How long, on average, does XYZ take to pay for its purchases?

  What are cranberry contribution and contribution margin

What is the firm's breakeven point in units? c. Calculate the dollar breakeven point in two ways. d. Sketch the Breakeven Diagram.

  What is the equivalent annual cost of an oven

What is the equivalent annual cost of an oven if the required rate of return is 10 percent? (Round your answer to whole dollars)

  Computation of irr and npv of the project

Computation of IRR and NPV of the project and decision making and which project should be adopted and Why

  Discuss and list six cultural factors

Discuss and list six cultural factors that can impede the success of a merger or acquisition between two companies after all legal and financial arrangements are finalized and the M & A is completed.

  Which is the effective annual rate

Your auto finance company is quoting you an Annual Percentage Rate (APR) of 8%. You are borrowing $45,000 and the payment is $845 per month. You will make monthly payments. Which is the Effective Annual Rate (EAR)?

  Pmt on a mortgage

Calculate the PMT on a mortgage

  Present value of 20 year annuity

Find out the present value of 20-year annuity with the semiannual payments of $500 evaluated at a 14 percent interest rate?

  Calculate future value of income

Tina, age fifty is an accountant. She earns $50,000 a year. After consulting with you, she concludes that she can live on 70 percent of her current salary if she were to retire today.

  What is the hedge ratio

You have a 91 day (=0.25 year) $100 call option on Discovery Cafe. You find that Discovery Cafe is currently trading at $90.00, pays no dividends and, over the past three years, has exhibited a daily annualized price volatility of 40%. Interest ra..

  Computation of after tax rate of return on investment

Computation of after tax rate of return on investment Assume that federal taxes are not deductible against state taxes and vice versa

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