Question: A stock with a current price $82 has a call option available with a strike price of $80. The stock will move up by a

A stock with a current price $82 has a call option available with a strike price of $80. The stock will move up by a factor of 1.14 or down by a factor of .88 each period for the next two periods and the risk-free rate is 3.5 percent. What is the price of the call option today?

Step by Step Solution

★★★★★

3.27 Rating (171 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

The stock price in one period will be S u 82114 9384 S d 8208... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

175-B-A-I (2103).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

A put option on a stock with a current price of $33 has an exercise price of $35. The price of the corresponding call option is $2.25. According to put-call parity, if the effective annual risk-free...

Consider a stock with a current price of P = $27. Suppose that over the next 6 months the stock price will either go up by a factor of 1.41 or down by a factor of 0.71. Consider a call option on the...

A stock with a current price $58 has a put option available with a strike price of $60. The stock will move up 1.13 or down .88 over the next period and the risk-free rate is 3 percent. What is the...

22. Two-Period Binomial Option Pricing (CEA2) A stock with a current price $78 has a call option available with a strike price of $80. The stock will move up by a factor of 95 or down by a factor of...

13. One-Period Binomial Option Pricing (LOI, CFA2) A stock with a current price $58 has a put option available with a strike price of $55. The stock will move up by a factor of 1.13 or down by a...

1) What is the value of a put option if the underlying stock price is $38, the strike price is $31, the underlying stock volatility is 43 percent, and the risk-free rate is 4.4 percent? Assume the...

A stock has a current price of $70 A call option written on this stock has a strike price of $72 and expresin 4 months time The riskfree rate of interests a continuously compounded Using 1-step...

A stock has a current price of $70. A call option written on this stock has a strike price of $72 and expires in 4 months' time. The riskfree rate of interest is 4% pa continuously compounded. Using...

You are engaged to perform the first audit of the Marble Company for the year ended December 31, 2007. You find the following account balances related to stockholders equity: Preferred stock, $100...

Present value of annuity problem: you will receive $1,000 at the end of the next 10 years, assuming a 7% discount rate, what is the present value of the cash flows?

Several banks offer inflation - linked savings accounts, which pay interest on deposits equal to the sum of a fixed interest rate and an inflation - linked rate. ( 4 . 1 5 ) a . If the savings...

What do you see as the advantages and disadvantages of the diff erent types of queues for an organization serving large numbers of customers? For which type of service might each of the queuing types...

2. Dividend Valuation (LO1, CFA6) In Problem 1, suppose the current share price is $60. If all other information remains the same, what must the liquidating dividend be?

3. Free Cash Flow Model (LO3, CFA2) You are going to value Lauryns Doll Co. using the FCF model. After consulting various sources, you find that Lauryns has a reported equity beta of 1.4, a...

4. Free Cash Flow Model (LO3, CFA7) Using your answer to Problem 3, calculate the appropriate discount rate assuming a risk-free rate of 4 percent and a market risk premium of 7 percent.

Explain the process of database normalization. What are the different normal forms, and how do they contribute to reducing redundancy and improving data integrity?

Consider the following two projects: Project Year 0 Year 1 Year 2 Year 3 Year 4 Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow - 100 40 50 60 N/A B -73 30 30 30 30 Discount Rate 0.15 0.15 The net...

12. Is your Thorne tithe finwumate... in r...-1nin 13. What happens if the Thorpe tube flowmeter is not vertical? 7. Fill in the blanks: Liquid oxygen expands times to become gaseous oxygen. One...