Over the coming year, Ragwort's stock price will halve to $60 from its current level of...
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Over the coming year, Ragwort's stock price will halve to $60 from its current level of $120 or it will rise to $240. The one-year interest rate is 12%. a. What is the delta of a one-year call option on Ragwort stock with an exercise price of $120? (Round your answer to 4 decimal places.) b. Given the delta computed in part (a), how much would be borrowed if the replicating-portfolio method was used to value the call option? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) c. In a risk-neutral world, what is the probability that Ragwort stock will rise in price? (Round your answer to 2 decimal places.) d. Using the risk-neutral method, what is the value of the call option? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) e. If someone told you that in reality there is a 60% chance that Ragwort's stock price will rise to $240, would you change your view about the value of the option? Answer is complete but not entirely correct. a. Delta 0.6667 b. Loan amount $ 120.66 x C. Probability 0.41 d. Value of call S 36.36x e. Will you change your view about the value of the option? No Over the coming year, Ragwort's stock price will halve to $60 from its current level of $120 or it will rise to $240. The one-year interest rate is 12%. a. What is the delta of a one-year call option on Ragwort stock with an exercise price of $120? (Round your answer to 4 decimal places.) b. Given the delta computed in part (a), how much would be borrowed if the replicating-portfolio method was used to value the call option? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) c. In a risk-neutral world, what is the probability that Ragwort stock will rise in price? (Round your answer to 2 decimal places.) d. Using the risk-neutral method, what is the value of the call option? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) e. If someone told you that in reality there is a 60% chance that Ragwort's stock price will rise to $240, would you change your view about the value of the option? Answer is complete but not entirely correct. a. Delta 0.6667 b. Loan amount $ 120.66 x C. Probability 0.41 d. Value of call S 36.36x e. Will you change your view about the value of the option? No
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