What is the value of a six-month European

Assignment Help Portfolio Management

Reference no: EM133089495

Question: As a financial analyst at JP Morgan Chase, you are applying a two-step binomial model to value a stock option. A stock price is currently $70. Over each of the next two three-month periods it is expected to go up by 6% or down by 5%. The risk-free interest rate is 5% per annum with continuous compounding and. You want to find the answers to the following questions:

a) What is the value of a six-month European put option with a strike price of $71?

b) If the put option were American, would it ever be optima to exercise it early at any of the nodes on the tree?

Please choose all correct answers. Please note that each incorrect answer will reduce the score by 10%.

1. The value of a six-month European put option is $1.23

2. The value of a six-month American put option is $4.30

3. The value of a six-month American put option is $3.0

4. The value of a six-month European put option is $1.66

5. The value of a six-month American put option is $2.04.

6. The value of a six-month European put option is $1.80

7. It's worthwhile to exercise this put option if it were American.

8. The value of a six-month American put option is $1.80.

9. It's not worthwhile to exercise this put option if it were American

Reference no: EM133089495

Questions Cloud

Appropriate financial function to solve problem : Suppose you invest $600,000 in Bandung funds paying 2.5% annual interest. You plan to withdraw $30,000 at the beginning of each year for 25 years.

Summarise the major ethical business practices : Summarise the major ethical business practices that should be followed to build an honest reputation and ensure smooth running of any organisation in Kenya.

Certified diabetes educator : What are three (3) reason why a referral to a Certified Diabetes Educator would be important for this patient?

Tangible-intangible-organizational capabilities of 3m : b. To be successful company, what competitive strategy is 3M used to compete in the global marketplace?

What is the value of a six-month European : What is the value of a six-month European put option with a strike price of $71 - would it ever be optima to exercise it early at any of the nodes on the tree

Compute the materials yield variance : The standard product mix is making 12,500 tubes of liquid sober is: Compute the materials yield variance. Indicate whether favorable or unfavorable

Explain the term action learning : Explain the term "Action Learning" and elaborate on its benefits for an individual as well as entire organizations

Benefit from machine learning implementation : Which of the cases (provide examples) could benefit from machine learning implementation?

Summarize the film and discuss the legal issues involved : Summarize the film and discuss the legal issues involved. Your summary should be approximately 3-5 substantive paragraphs long

User Account

All Pages