Suppose that a share of Microsoft stock is currently priced at $50 per share and that in
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Question:
Suppose that a share of Microsoft stock is currently priced at $50 per share and that in one time period it will be either $40 per share or $60 per share. Also, suppose that a share of Pepsi stock is currently priced at $40 per share and that in one time period it will go down to $35 per share or go up to $45 per share where one time period is one day.
(a) Using a state price vector, find a fair price of a European call option on Microsoft stock with expiration at time t = 1 day and strike price X = $50.
(b) Using a state price vector, find a fair price of a European put option on Pepsi stock with expiration at time t = 1 day and strike price X = $34.
Related Book For
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
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