Koenig Enterprises is a whiskey manufacturer in Northern Kentucky and trades on the NYSE under the...
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Koenig Enterprises is a whiskey manufacturer in Northern Kentucky and trades on the NYSE under the ticker symbol POS. Their stock currently sells for $65 per share and has options traded on it. Next year, there are ONLY two possible outcomes. Either the economy will not be in recession, in which case the price per share of POS will be $87; or the economy will be in recession and the price per share of POS will be $34. Historically, since 1945, the economy has been in recession about 20% of the time. Predicting the future is difficult, but the latest analyst consensus is that the economy has a 33% chance of being in recession next year. The risk-free rate is 2% per year APR, compounded annually. What is the price of a ONE-YEAR CALL OPTION with a strike price of 51? Koenig Enterprises is a whiskey manufacturer in Northern Kentucky and trades on the NYSE under the ticker symbol POS. Their stock currently sells for $65 per share and has options traded on it. Next year, there are ONLY two possible outcomes. Either the economy will not be in recession, in which case the price per share of POS will be $87; or the economy will be in recession and the price per share of POS will be $34. Historically, since 1945, the economy has been in recession about 20% of the time. Predicting the future is difficult, but the latest analyst consensus is that the economy has a 33% chance of being in recession next year. The risk-free rate is 2% per year APR, compounded annually. What is the price of a ONE-YEAR CALL OPTION with a strike price of 51?
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Solution Option Price 1325 Calculations 1 Calculate the expected return for a share of POS given the ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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