Over the coming year, Ragwort's stock price will halve to $35 from its current level of...
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Over the coming year, Ragwort's stock price will halve to $35 from its current level of $70 or it will rise to $140. The one-year interest rate is 10%. a. What is the delta of a one-year call option on Ragwort stock with an exercise price of $70? Note: Round your answer to 4 decimal places. b. What is the amount of the loan in the replicating portfolio? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. Given the delta computed in part (a), how much would be borrowed if the replicating-portfolio method was used to value the call option? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. d. In a risk-neutral world, what is the probability that Ragwort stock will rise in price? Note: Round your answer to 2 decimal places. e. Using the risk-neutral method, what is the value of the call option? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. f. If someone told you that in reality there is a 60% chance that Ragwort's stock price will rise to $140, would you change your view about the value of the option? Over the coming year, Ragwort's stock price will halve to $35 from its current level of $70 or it will rise to $140. The one-year interest rate is 10%. a. What is the delta of a one-year call option on Ragwort stock with an exercise price of $70? Note: Round your answer to 4 decimal places. b. What is the amount of the loan in the replicating portfolio? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. Given the delta computed in part (a), how much would be borrowed if the replicating-portfolio method was used to value the call option? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. d. In a risk-neutral world, what is the probability that Ragwort stock will rise in price? Note: Round your answer to 2 decimal places. e. Using the risk-neutral method, what is the value of the call option? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. f. If someone told you that in reality there is a 60% chance that Ragwort's stock price will rise to $140, would you change your view about the value of the option?
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