Q5) (1%) A stock is worth 15 today. i) Suppose that in a month, the stock...
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Q5) (1%) A stock is worth £15 today. i) Suppose that in a month, the stock price can rise by 10% or fall by 15%. If the riskless interest rate r 5%, what is the price of a Euro- pean call option that expires in five months and has an exercise price of £18? = ii) Suppose that in a month, the stock price can rise or fall by 20%. If the riskless interest rate r = 10%, what is the price of a European put option that expires in six months and has an exercise price of £8? Q5) (1%) A stock is worth £15 today. i) Suppose that in a month, the stock price can rise by 10% or fall by 15%. If the riskless interest rate r 5%, what is the price of a Euro- pean call option that expires in five months and has an exercise price of £18? = ii) Suppose that in a month, the stock price can rise or fall by 20%. If the riskless interest rate r = 10%, what is the price of a European put option that expires in six months and has an exercise price of £8?
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