Find the possible prices for the stock after one year

Assignment Help Operation Management
Reference no: EM131012614

Suppose the price of a stock is today is $100. We would like to use the binomial pricing model to price a call option on this stock with exercise price 8100 and expiring in one year. We break the year into two 6-months consecutive periods. We know that after the first 6-month period the price of the stock will have evolved with either a multiplying factor of 0.8 or a multiplying factor of 1.2. From that point, after the next 6-months the price of the stock will have evolved with either a multiplying factor of 0.8 or a multiplying factor of 1.2. Suppose risk-free interest rate is 2 percent.

  • Find the possible prices for the stock after one year.
  • Find the payoffs of the call option after one year.
  • Find the price of the call option today.

Reference no: EM131012614

Questions Cloud

About the loan amortization : Your company is planning to borrow $0.5 million on a 3-year, 14%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal?
Find the approximate change in the demand for your coffee : Use total differentiation to find the approximate change in the demand for your coffee with an increase in income of $5,000, if initially, Y = 40, 000, P = 3.00 and Pc = $3.50.
Plot the do vs. time in the seed bottle : You add 10 mL of sample and 5 mL of seed to bottle #1 (the sample bottle) and 20 ml of seed to bottle #2 (the seed bottle). The initial and 5-day DO in bottle #1 is 8.2 mg/I and 2.5 mg/l, respectively. The initial and 5-day DO in bottle #2 is 8.2 ..
Assess consumers perceptions of satisfries : If you were in charge of research at Burger King, what 2 research methods would you have used to assess consumers' perceptions of Satisfries before the product was launched
Find the possible prices for the stock after one year : Find the possible prices for the stock after one year. Find the payoffs of the call option after one year. Find the price of the call option today.
What rate would you expect to see on a treasury bill : Suppose the real rate is 4.05 percent and the inflation rate is 2.8 percent. What rate would you expect to see on a Treasury bill?
What dimensions minimize the surface area : A box has a bottom with one edge 6 times as long as the other. If the box has no top and the volume is fixed at V, what dimensions minimize the surface area?
Calculate the ultimate bod : A BOD test was conducted on the unchlorinated effluent of a municipal treatment plant. The wastewater portion added to a 300 mL BOD bottle was 8 ml. The dissolved oxygen values and incubation periods are listed below. Determine the 5-day BOD value..
Perpetual and zero bonds : What is the value of perpetuity bond today, assuming it pays $1000 per year? What is the value of the zero coupon bond today? How many of the perpetual and zero bonds would you be purchasing today?

Reviews

Write a Review

Operation Management Questions & Answers

  Operate differently than the adult courts

Discuss reasons why a juvenile court must be operated differently than an adult court. Next, identify and describe at least two process functions of a juvenile court that operate differently than the adult courts.

  Language challenges when seeking potential overseas supplier

Describe how organizations can overcome the geographic, cultural, and language challenges when seeking potential overseas suppliers. Give specific examples. Decide how organizations can instill the same ethical standards in overseas suppliers, especi..

  Integral part of the strategic management of an organization

Why and how are the following an integral part of the strategic management of an organization, i.e. strategic planning, strategic execution, and strategic control? Discuss each fully and separately. Be specific.

  Provide the xy department with additional functionality

This would assist Good Programs to more readily sell their products elsewhere around the world, while providing the XY Department with additional functionality also benefits.

  Identify and cite an action from oxo

Identify and cite an action from Oxo, and label/name the action as to what strategy it is. List (separately) as many actions and strategies as possible which, you believe, the company is formulating or implementing

  What are the support also resources required from senior

As none your team B2B outside sales experience, will six months be enough time to train some or all of your employees on B2B outside sales techniques, or will going to the external market place be the best solution.

  Customers serve themselves

A cafeteria serving line has a coffee urn from which customers serve themselves. Arrivals at the urn follow a Poisson distribution at the rate of 3 per minute. In serving themselves, customers take about 15 seconds, exponentially distributed. How man..

  How gsi should schedule production for the new order

Formulate a linear programming model to determine how GSI should schedule production for the new order in order to minimize the total production cost.

  Computer assembly

Computer Assembly

  Tort is a violation of duty imposed by the civil law

Per the text, a tort is a violation of duty imposed by the civil law. Define one (1) of the torts from your reading (e.g., the tort of trespass, invasion of privacy, assault, battery, etc.). Explain the effect(s) that this tort might have on a busine..

  Lack of trust in management

Change is everywhere, yet very few people seem to embrace the concept. We are, for the most part, creatures of habit and follow daily routines. When change occurs, our activities and thought patterns are disrupted.

  Define and discuss quality management

Define and discuss quality management, the evolution of the quality improvement movement, and implications of public health for health care organizations to implement national quality initiatives.

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