Determine a fair price for a two year cashor nothing option

Assignment Help Financial Management

Reference no: EM131318731

A stock is priced at 125.37, the continuously compounded risk-free rate is 4.4 percent, and the volatility is 21 percent. There are no dividends. Answer the following questions.

a. Determine a fair price for a two-year assetor-nothing option with exercise price of 120.

b. Assuming you purchased the asset-ornothing option at the price you determined in a, calculate your profit if the asset price at expiration is (1) 138 and (2) 114.

c. Determine a fair price for a two-year cashor-nothing option with exercise price of 120 that pays 120 if it expires in-the-money.

d. Assuming you purchased the cash-or-nothing option at the price you determined in c, calculate your profit if the asset price at expiration is (1) 138 or (2) 114.

Reference no: EM131318731

Questions Cloud

Exchange rates or currency forecasts : Choose an global industry and consider the following topics: diversification, investment, management, exchange rates or currency forecasts. Which of these would be most significant to your selected industry and how would you address them?

Find the premium on an at the money paylater call option : Find the premium on an at-the-money paylater call option. Then determine the market value of the option nine months later if the stock is at 110.

What types of cost data are required by the mcmt : IE 475 - ADVANCED MANUFACTURING COSTING TECHNIQUES: How does the MCMT support strategic cost management? Is the MCMT more appropriate for organizations that compete on cost leadership ordifferentiation? A mix of both strategies?Does the MCMT focus on..

The cost of capital-weighted average cost of capital : The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects.

Determine a fair price for a two year cashor nothing option : Determine a fair price for a two-year cashor-nothing option with exercise price of 120 that pays 120 if it expires in-the-money.

What are all the possible resulting values of w x y and z : What are all the possible resulting values of w, x, y, and z? For each possible outcome, explain how we might arrive at those values. You will need to examine all possible inter leavings of instructions.

Prepare a visual presentation for the project sponsor : Prepare a visual presentation for the project sponsor and other executives of the company that describes the team structure for the project.

Cost of common equity with flotation : Banyan Co.'s common stock currently sells for $42.00 per share. The growth rate is a constant 11.2%, and the company has an expected dividend yield of 3%.

Determine the value of both io and po strips : Determine the amortization schedule.- Determine the value of both IO and PO strips with a discount rate of 10 percent under the assumption that the mortgage will not be prepaid.

User Account

All Pages