2. (15%) Alex would like to speculate on a possible rise in the stock price of...

 

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2. (15%) Alex would like to speculate on a possible rise in the stock price of FB (Facebook). The current stock price of FB is $29. Alex expects that in one year the stock price of FB will be either $40 (up move) or $20 (down move). The exercise price of one-year European call (put) option of FB-S30 and the one-period risk-free rate re 2% per annum (NOT r.). Alex would like to construct a portfolio with the stock and cash from borrowing to replicate the payoff of 200 units (2 contracts) of European call options of FB. (a) (3%) How many shares of FB does Alex need to buy now? (b) (3%) How much (S) does Alex need borrow now? (c) (3%) Calculate the percentage margin (Note: percentage margin (equity)/(value of stock)). (d) (3%) Calculate the current price of European call option of FB (per unit) in the binomial setting. (e) (3%) Calculate the current price of European put option of FB (per unit). 2. (15%) Alex would like to speculate on a possible rise in the stock price of FB (Facebook). The current stock price of FB is $29. Alex expects that in one year the stock price of FB will be either $40 (up move) or $20 (down move). The exercise price of one-year European call (put) option of FB-S30 and the one-period risk-free rate re 2% per annum (NOT r.). Alex would like to construct a portfolio with the stock and cash from borrowing to replicate the payoff of 200 units (2 contracts) of European call options of FB. (a) (3%) How many shares of FB does Alex need to buy now? (b) (3%) How much (S) does Alex need borrow now? (c) (3%) Calculate the percentage margin (Note: percentage margin (equity)/(value of stock)). (d) (3%) Calculate the current price of European call option of FB (per unit) in the binomial setting. (e) (3%) Calculate the current price of European put option of FB (per unit).