Question: Let S = $40, K = $45, = 0.30, r = 0.08, T = 1, and = 0. a. What is the price

Let S = $40, K = $45, σ = 0.30, r = 0.08, T = 1, and δ = 0.

a. What is the price of a standard call?

b. What is the price of a knock-in call with a barrier of $44? Why?

c. What is the price of a knock-out call with a barrier of $44? Why?

Step by Step Solution

★★★★★

3.26 Rating (164 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

a A standard call is worth 41293 b A knock in call will also be worth 41293 y... View full answer

blur-text-image
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)

Word file Icon

511-B-C-F-O (491).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

Q:

What is the price of the following split coupon bond if comparable yields are 12 percent? Principal........ $1,000 Maturity........ 12 years Annual coupon........ 0% ($0) for years 13 10% ($100) for...

Q:

What is the price of a zero-coupon bond that has a par value of $1,000? The bond matures in thirty years and offers a yield to maturity of 4.5 %. Calculate the price one year later when the bond has...

Q:

What is the price of a 3-year interest rate cap with an 11.5% (effective annual) cap rate? Bond maturity (years) Bond price 1-year forward price volatility 0.9259 0.8495 0.7722 0.7020 0.1000 0.1050...

Q:

Let S = $40, K = $45, = 0.30, r = 0.08, T = 1, and = 0. a. What is the price of a standard call? b. What is the price of a knock-in call with a barrier of $44? Why? c. What is the price of a...

Q:

6. Let S = \($40\), K = \($45\), = 0.30, r = 0.08, T = 1, and = 0. a. What is the price of a standard call? b. What is the price of a knock-in call with a barrier of $44? Why? c. What is the price...

Q:

INSTRUCTION: Use OptAll program for the following questions. When you open OptAll program, be sure you enable macro. The tabs of the worksheets indicate the corresponding option pricing models or...

Q:

14.6 Let S = $40, K = $45,0 =0.30. r =0.08. T = 1, and 8 = 0. a. What is the price of a standard call? b. What is the price of a knock-in call with a barrier of $44? Why? c. What is the price of a...

Q:

Please do by hand on paper. If you do it in excel please explain how to do it I dont know how to use excel and I need to understand each step. Thanks. 14.7. Let S = $40, K = $45, = 0.30, r = 0.08, =...

Q:

Let S = $40, K = $45, = 0.30, r = 0.08, and = 0. Compute the value of knockout calls with a barrier of $60 and times to expiration of 1 month, 2 months, and so on, up to 1 year. As you increase...

Q:

Let S = $40, K = $45, = 0.30, r = 0.08, and = 0. Compute the value of knockout calls with a barrier of $60 and times to expiration of 1 month, 2 months, and so on, up to 1 year. As you increase...

Q:

Heather runs a chain of florist shops. Over the years, she has purchased 8 premises for her business. Her main criterion in selecting each of the premises was where flower sales were most likely to...

Q:

The commercial loan officers did not list the dividend payout ratio as a highly significant ratio, but they did indicate that the dividend payout ratio appeared frequently in loan agreements....

Q:

In the class of 25 students, what is the probability that two or more of them were born on the same day?

Q:

7.13 Is COQ more consistent with TQM or ROQ? Explain.

Q:

Prove the following conditions using an arbitrage argument. In your proof, show the initial positive cash flow when the condition is violated and prove that there are no liabilities at expiration: a....

Q:

Suppose the US investor in Question 8 were risk averse, instead of risk neutral, and wants a risk premium of \(1 \%\) (annual) for assuming the exchange-rate risk on the international investment. a....

Q:

Assume two periods to expiration, \(u=1.05, d=1 / 1.05, r_{f}=1.02, S_{0}=\$ 100\), no dividends, and \(X=\$ 100\) on a European put expiring at the end of the second period. a. Find: \(P_{u w}, P_{u...

Q:

Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for \$879. Selected data for the company's operations last year follow:...

Q:

How Many Apps for Your Smartphone? A random sample ofn = 461 smartphone users in the US in January 2015 found that 355 of them have downloaded an app. 1 Of then = 355 smartphone users who had...

Q:

Type your question h 10. Consider the following balance sheet: Cash $ 70,000Accounts payable $ 30,000 Accounts receivable 30,000Long-term debt 20,000 Inventories 50,000Common stock 200,000 Net fixed...