Reference no: EM132666161
1) The current stock price of one share of XOM is $40 per share and the risk free interest rate is 8% per year. The market price of a European call option with six months to maturity and a strike price of $50 is $1.
i) Assume that the stock is not expected to pay any dividend in the next six months. What is the no-arbitrage price of a European put option with the same strike price and maturity? Please round to the nearest cent.
ii) Continue from the above (that is, assuming that the stock price and call option price are the same as given above). Now assume that the market is expecting XOM to pay a continuous compounded dividend yield of 5% per year for the next year. Under this alternative assumption, what is the no arbitrage price of a European put option with the same price and maturity? Please round to the nearest cent.
iii) Now, instead of assuming continuously compounded dividend, assume that XOM is expected to pay a $2 at the end of the third month, and another $2 dividend at the end of the sixth month before the expiration of the options. Under this assumption, what is the no arbitrage price of a European put option with the same price and maturity? Please round to the nearest cent.
2) A stock currently sells for $72 per share. A 6-month European call option with a strike price of $70 has a premium of $4.7, and a 6-month European put option with the same strike price has a premium of $2.6. Assume that the continuously compounded interest rate is 4% per year
i) What is the implied continuously compounded dividend yield of the stock?
3) A one-year dollar dominated (European) call option at the money on the Euro with a strike price of 1.1$/Euro is traded at $0.02. The price of a (European) put option with the same strike price and maturity is $0.03. The continuous compounded US Dollar LIBOR is 4% per year. At the money means that the strike prices of the options are the same as the current exchange rate.
i) What is the Euro interest rate according to the no-arbitrage condition?