Question: 1a) Let S = $50, K = $55, r = 8% (continuously compounded), T = 0.25, and d = 0. Let u = 1.25, d
1a)
| Let S = $50, K = $55, r = 8% (continuously compounded), T = 0.25, and d = 0. Let u = 1.25, d = 0.7, and n = 1. What are D and B for a European put? | |||||||||||||
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| 1b) Let S = $65, K = $70, r = 3% (continuously compounded), T = 1, and d = 0. Let u = 1.25, d = 0.7, and n = 1. Calculate the value of a European put if D = 0.685315 and B = 54.0362. | |||||||||||||
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1c)
| Let S = $40, K = $35, r = 7% (continuously compounded), d = 4%, s = 40%, and T = 2. What are the appropriate values of u and d to build a 5-period binomial stock price tree? (Use the formulas from the main part of the chapter and lecture notes, not the alternative formulas in the appendix.) | |||||||||||||
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