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

  Medieval universities differ from universities today

Medieval Universities differ from universities today? See Jacques de Vitry's description of medieval students for one scholar's description of students in medieval universities.

  Consider a and b live in an exchange economy with two goods

consider a and b live in an exchange economy with two goods x1 and x2. a owns 50 of both goods and b own 250 of both

  Famas llamas has a wacc of 105 the companys cost of equity

famas llamas has a wacc of 10.5. the companys cost of equity is 14 and its cost of debt is 8. the tax rate is 30. what

  Compute the cost of capital of the company

Based on the above information, compute the cost of capital of the company.

  What is the npv of delaying the investment

When preparing capital budgeting analysis for a new project, Chris Johnson, a chief financial officer at BT Industries, faced a dilemma.

  What is the required return on delta plcs equity

How many shares will the company repurchase as a result of the debt issue?

  What must the average beta of the new stocks

What must the average beta of the new stocks be to achieve the target required rate of return?

  What is the effective interest cost of loan

Set up the amortization schedule for a five-year, $1 million, 9 percent loan that requires equal annual end-of-year principal payments plus interest on the unamortized loan balance. What is the effective interest cost of this loan?

  Impact the budget deficit and the national debt

How does the cut in Government spending impact the budget deficit and the national debt?

  Comment on the financial prudence of merger decision

MERGERS & ACQUISITIONS QUESTION: The firm's cost of capital is 15%. As a financial consultant, comment on the financial prudence of merger decision of A Ltd

  Draw the profit diagram at expiration

If you plan to hold the options positions to expiration, devise a zero-net-investment arbitrage strategy to exploit the pricing anomaly.

  What do you think drives the increasing cost of healthcare

What do you think drives the increasing cost of healthcare? What part of the healthcare ecosystem do you think is most inefficient or efficient?

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