A stock has a current price of $150, an annual volatility of returns of 10%, and...

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A stock has a current price of $150, an annual volatility of returns of 10%, and pays no dividends. The risk-free rate is 10%. Consider a 6-month European call option on this stock with a strike price of $120 and a 2-period binomial options pricing model where u and d are calculated as in class. 1a.) What is the payoff of the option if the stock price goes up twice? 1b.) What is the payoff of the option if the stock price goes up then down? 1c.) What is the payoff of the option if the stock price goes down twice? A stock has a current price of $150, an annual volatility of returns of 10%, and pays no dividends. The risk-free rate is 10%. Consider a 6-month European call option on this stock with a strike price of $120 and a 2-period binomial options pricing model where u and d are calculated as in class. 1a.) What is the payoff of the option if the stock price goes up twice? 1b.) What is the payoff of the option if the stock price goes up then down? 1c.) What is the payoff of the option if the stock price goes down twice?

Answer rating: 100% (QA)

To calculate the payoffs of the option in each scenario we can use the binomial options pricing mode... View the full answer