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What is the insurance cost of option

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Reference no: EM133003757

XYZ is trading at $100, a 6 month call option on XYZ struck at $90 is priced at $15. 6 month LIBOR is 3% per annum and XYZ has a 1% per annum dividend yield.

a) What is the insurance cost of this option?

b) What is the forward price of the stock six months from now?

c) If the volatility used to value the option is 28.28%/year what is the 6 month expected volatility?

d) What is the probability that the stock will trade above $121.20 in six months?

e) Using a range between $61 - $141 and working in increments of $2, that is $61 - $63, $63 - $65, etc., determine the probability of the stock trading between every two points in the range. Additionally, find the probability of the stock trading below $61 and above $141.

f) Determine what the option is worth in each 2 dollar range using the midpoint of the range as the ending price of the stock. Assume a stock price of $146.5 as the midpoint of the range associated with the stock trading above $141.

g) Given your response in i) and j), what is the XYZ $90 strike 6 month call option worth?

Reference no: EM133003757

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