Question

Eagletron’s current stock price is $10. Suppose that over the current year, the stock price will either increase by 100% or decrease by 50%. Also, the risk-free rate is 25% (EAR).
a. What is the value today of a one-year at-the-money European put option on Eagletron stock?
b. What is the value today of a one-year European put option on Eagletron stock with a strike price of $20?
c. Suppose the put options in parts a and b could either be exercised immediately, or in one year. What would their values be in this case?



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  • CreatedAugust 06, 2014
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