Consider a two-period binomial model for an American call option on a stock index. You are...

 

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Consider a two-period binomial model for an American call option on a stock index. You are given: (i) The current stock index price is RM120. (ii) The strike price is RM100. (iii) The stock index pays continuous compounded dividends at a rate of 3.5%. (iv) The continuously compounded risk-free interest rate is 5%. (v) The volatility is 30% per annum. (vi) The time to maturity is 8 months. (vii) The expected return on the stock index is 15%. The binomial tree is constructed based on forward prices. Determine the actual discount rate for the option when the stock price is RM120 Consider a two-period binomial model for an American call option on a stock index. You are given: (i) The current stock index price is RM120. (ii) The strike price is RM100. (iii) The stock index pays continuous compounded dividends at a rate of 3.5%. (iv) The continuously compounded risk-free interest rate is 5%. (v) The volatility is 30% per annum. (vi) The time to maturity is 8 months. (vii) The expected return on the stock index is 15%. The binomial tree is constructed based on forward prices. Determine the actual discount rate for the option when the stock price is RM120

Answer rating: 100% (QA)

To determine the actual discount rate for the option when the stock price is RM120 we need to calcul... View the full answer