21. Data: S0 = 100; X = 110; 1 + r = 1.1. The two possibilities for ST are 150 and 80.

Calculate the value of a call option on the stock with an exercise price of 110. (Do not use continuous compounding to calculate the present value of X in this example, because the interest rate is quoted as an effective per period rate)

22. A stock index is currently trading at 50. Paul Tripp, CFA, wants to value two-year index options using the binomial model. In any year, the stock will either increase in value by 20% or fall in value by 20%. The annual risk-free interest rate is 6%. No dividends are paid on any of the underlying securities in the index.

a. Construct a two-period (two-year) binomial tree for the value of the stock index. In each year, the stock will either increase in value by 20% or fall in value by 20%

b. Calculate the value of a European call option on the index with an exercise price of 60

23. If one of these variables increases, the value of put option will increase or decrease. Simply put Increase or Decrease for each of the variables

If this variable increases Stock price, S Exercise price, X V olatility

Time to expiration, T Interest rate, r Dividend payouts

The value of put option (will increase or decrease)?

24. A call option with X = $50 on a stock currently priced at S = $55 is selling for $10. Using a volatility estimate of ? = .30, you find that N(d1) = .6 and N(d2) = .5. The risk-free interest rate is zero. Is the implied