User Account

All Pages

What is the premium of the call option today

Assignment Help Finance Basics
Reference no: EM133068603

You believe that the covid-19 situation will improve in the coming months and investment activities will increase. Hence you expect the HSI will go up. In order to capture the profit, you decide to invest in the call option of HSI. Here is the information on the (European) call option and the market:

Option: Call
Strike Price: 28000
Time to maturity: 1 Year
u (per 6-month): 1.25
d (per 6-month): 0.75
Dividends: 0
Current price of HSI: 28000
Risk-free rate: 4% p.a. (continuously compounded)

(a) Construct a 2-period binomial tree for HSI. (6-month per period.)

(b) What is the premium of the call option today?

(c) Suppose you observed that in the market, there is an interesting call option that offer a very special payoff. When the option is exercised, the payoff is equal to the average price of HSI throughout the life of the option less the strike price (28000). What is the premium of this special call option?

Reference no: EM133068603

Questions Cloud

Regulator in the financial services industry : What is the purpose of a regulator in the Financial Services Industry?
What is the optimal number of contracts now : On October 20, a portfolio manager is concerned about the volatility in the stock market over the next four months. Her portfolio has accumulated an impressive
Prepare the journal entries to record depreciation : The depreciation method for the equipment did not change. Prepare the journal entries to record depreciation for both assets for 2022
Describe the term net neutrality : The term "net neutrality" describes the principle and Where might someone encounter a phishing scam
What is the premium of the call option today : You believe that the covid-19 situation will improve in the coming months and investment activities will increase. Hence you expect the HSI will go up. In order
How much will you pay for a share today : Stoneworks, Inc., has an odd dividend policy. The company has just paid a dividend of $15 per share and has announced that it will increase the dividend by $3 p
Calculate the price of the bond : The bond stipulates that the yield to maturity is 6.71% and the maturity date is 7 years from today. Calculate the price of the bond
What would be the depreciation expense for the second year : Marlow Company purchased a point of sale system on January 1 for $7000. What would be the depreciation expense for the second year
Compute the estimated annual risk premiums : Greta has risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd