Find single-period binomial model

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Reference no: EM131458102

Question: (Microsoft Excel) Implied Volatility

Consider the following data for computing option prices given to you by your professor.

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You want to know how this data was generated. The professor, when asked, apologizes and says, "I used a Jarrow-Rudd approximation but I lost the data. You are an Excel expert-why don't you use ‘Goal Seek' and determine what the volatility is?"

Following data for a single-period binomial model:

· A stock's price S is $50. After six months, it either goes up by the factor U = 1.22095341 or it goes down by the factor D - 0.79881010.

· Options mature after T = 0.5 year and have strike price K = $45.

· A dollar invested in the money market account earns continuously compounded risk-free interest at 2 percent per year.

Reference no: EM131458102

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