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What is the conditional average price of underlying stock

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Reference no: EM133009750

You believe stock price by year end will have the following multinomial distribution:

Price            Probability

60                  10%

80                 20%

100              40%

120             20%

140             10%

Problem 1: What should be the stock price TODAY

Problem 2: what is the prob that a 110 strike CALL will expire ITM?

Problem 3: what is the conditional average price of underlying stock when 110 strike CALL expires ITM?

Problem 4: what is the conditional average payment from the 110 strike CALL option when the CALL expires ITM?

Problem 5: based on Q2-Q4, how much should the 110 CALL be priced at?

Reference no: EM133009750

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