2. The following table provided CALL and PUT options for Apple Inc. (AAPL) stock, which ended trading at US$121.03 $0.93; -0.76%) on March 12, 2021 (at 4:00PM EST; at close). According to the listing the options are going to expire on April 16, 2021 (i.e., it expires in 35 days). One option contract is equivalent to 100 shares. CALL Strike 85 90 95 100 120 125 150 Last Price 35.25 31.25 26.15 21.4 5.59 3.35 0.28 Bid 36.2 31.25 26.35 21.55 5.55 Option Price Ask Change 36.35 -1.85 31.4 -1.03 26.55 0.25 21.7 -11 5.7 -0.61 3.4 -0.44 0.29 -0.03 % Change -4.99% -3.1996 0.97% -4.89% -9.84% Volume 1 10 1 79 14,763 6,240 1,274 Open Interest 939 1,944 601 4.566 79,844 72.491 48,878 Implied Volatility 62.70% 55.76% 50.73% 46.95% 35.24% 34.35% 40.82% 3.35 0.28 -116193 -9.689 PUT % Change Bid Ask Change Strike 85 90 95 -7 694 100 Last Price 0.18 0.24 0.37 0.52 1.5 4.55 7.28 10.95 19.97 29.25 -0.02 0 0.01 0.11 0.18 0.25 0.36 0.54 1.5 4.55 73 0.16 0.23 0.31 0.52 1.47 4.5 72 10.7 19.45 29.1 110 120 125 130 140 Volume 32 16 93 423 1,753 17,619 580 719 5,095 364 Open Interest 2,732 5,063 6,651 13,718 19,349 89,396 56,787 31,335 90,098 4,639 -1.89% 7.9194 9.6496 7.8594 7.67% 7.8396 3.879 0.4 Implied Volatility 58.9896 53.71% 49.12% 44.48% 37.605 34.429 33.86% 33.90% 36.239 40.53% 0.33 0.78 1.45 10.85 19.6 29.25 150 1.09 d Suppose Apple Inc. offers to give you a partnership share in its stock if the price of the share drops below $121.03 in one year from now. The share today is $121.03. In other words, you are offered an asset-or-nothing PUT option. Apple Inc. charges a nominal fee of $15.00 for this option and you would like to know if Apple Inc. is charging the right price. (Answer the following questions per share) iDraw the payoff diagram for the asset-or-nothing put. ii. What is the payoff of the asset-or-nothing put if the share price is $150? 11. What is the payoff of the asset-or-nothing put if the share price goes down to $100%You decide to evaluate this option with a one-step binomial tree. The risk-free rate of interest is 5% (continuously compounded) and the dividend is 2 5%, and the volatility of the stock is 25%. iv. What is the risk-neutral probability of the share price going up? v.What is the price of the asset-or-nothing put option? viIs the company charging you the right price? Why? 2. The following table provided CALL and PUT options for Apple Inc. (AAPL) stock, which ended trading at US$121.03 $0.93; -0.76%) on March 12, 2021 (at 4:00PM EST; at close). According to the listing the options are going to expire on April 16, 2021 (i.e., it expires in 35 days). One option contract is equivalent to 100 shares. CALL Strike 85 90 95 100 120 125 150 Last Price 35.25 31.25 26.15 21.4 5.59 3.35 0.28 Bid 36.2 31.25 26.35 21.55 5.55 Option Price Ask Change 36.35 -1.85 31.4 -1.03 26.55 0.25 21.7 -11 5.7 -0.61 3.4 -0.44 0.29 -0.03 % Change -4.99% -3.1996 0.97% -4.89% -9.84% Volume 1 10 1 79 14,763 6,240 1,274 Open Interest 939 1,944 601 4.566 79,844 72.491 48,878 Implied Volatility 62.70% 55.76% 50.73% 46.95% 35.24% 34.35% 40.82% 3.35 0.28 -116193 -9.689 PUT % Change Bid Ask Change Strike 85 90 95 -7 694 100 Last Price 0.18 0.24 0.37 0.52 1.5 4.55 7.28 10.95 19.97 29.25 -0.02 0 0.01 0.11 0.18 0.25 0.36 0.54 1.5 4.55 73 0.16 0.23 0.31 0.52 1.47 4.5 72 10.7 19.45 29.1 110 120 125 130 140 Volume 32 16 93 423 1,753 17,619 580 719 5,095 364 Open Interest 2,732 5,063 6,651 13,718 19,349 89,396 56,787 31,335 90,098 4,639 -1.89% 7.9194 9.6496 7.8594 7.67% 7.8396 3.879 0.4 Implied Volatility 58.9896 53.71% 49.12% 44.48% 37.605 34.429 33.86% 33.90% 36.239 40.53% 0.33 0.78 1.45 10.85 19.6 29.25 150 1.09 d Suppose Apple Inc. offers to give you a partnership share in its stock if the price of the share drops below $121.03 in one year from now. The share today is $121.03. In other words, you are offered an asset-or-nothing PUT option. Apple Inc. charges a nominal fee of $15.00 for this option and you would like to know if Apple Inc. is charging the right price. (Answer the following questions per share) iDraw the payoff diagram for the asset-or-nothing put. ii. What is the payoff of the asset-or-nothing put if the share price is $150? 11. What is the payoff of the asset-or-nothing put if the share price goes down to $100%You decide to evaluate this option with a one-step binomial tree. The risk-free rate of interest is 5% (continuously compounded) and the dividend is 2 5%, and the volatility of the stock is 25%. iv. What is the risk-neutral probability of the share price going up? v.What is the price of the asset-or-nothing put option? viIs the company charging you the right price? Why