Question: 5. (Binomial model with only one period; total 1 point) The continuously compounded interest rate is 9.53102% per year, and each period is one year

5. (Binomial model with only one period; total 1 point) The

5. (Binomial model with only one period; total 1 point) The continuously compounded interest rate is 9.53102% per year, and each period is one year long, implying that the simple interest rate is e0.0953102 1 = 0.1 or 10% per period. The current price of BIN stock is $40 per share, and each period the price will either increase by 100% or decrease by 50% (that is, u= 2 and d = 0.5). BIN stock does not pay dividends. (a) (1/2 point) What is the value of a one-period European put option with an exercise price of $50? (b) (1/2 point) What is the replicating portfolio at the first node of the tree? (That is, how many shares would you have to buy or sell in order to replicate the put? What is the bond position?) 5. (Binomial model with only one period; total 1 point) The continuously compounded interest rate is 9.53102% per year, and each period is one year long, implying that the simple interest rate is e0.0953102 1 = 0.1 or 10% per period. The current price of BIN stock is $40 per share, and each period the price will either increase by 100% or decrease by 50% (that is, u= 2 and d = 0.5). BIN stock does not pay dividends. (a) (1/2 point) What is the value of a one-period European put option with an exercise price of $50? (b) (1/2 point) What is the replicating portfolio at the first node of the tree? (That is, how many shares would you have to buy or sell in order to replicate the put? What is the bond position?)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock 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

Students Have Also Explored These Related Finance Questions!

1. Present Value (a) Someone offers you a security which pays$nat the end of thenth yearuntil forever (i.e., it pays$1 at the end of the first year,$2 at the end ofthe second year, and so on). If the...

20.0953102 6. (Binomial model with two periods; total 2 points.) The continuously compounded interest rate is 9.53102% per year, and each period is one year long, implying that the simple interest...

PLEASE DON'T USE CHAT GPT TO ANSWER. PRICING AND DERIVATIVES QUESTIONS 1. Explain carefully the difference between hedging, speculation, and arbitrage 2. Choose the correct answer. In the binomial...

= Let So 100, and consider a 3-period binomial tree model in which in every period, 1-year long, there is 60% chance of u = 1.1 increase, or a 40% chance of d = decrease. Assume that the stock pays...

PROBLEM 1 What is a forward price of an index JKL given the following information? Date of pricing: November 15, 2019 Time till expiration: four months / Contract expires on March 15, 2020 Current...

This is real life math grade 11. Please help fill in the questions in the pict below. 6. $700 was invested at 7% interest and compounded annually for 4 years. K 15 a) Complete the table to determine...

6. (Binomial model with two periods; total 2 points.) The continuously compounded interest rate is 9.53102% per year, and each period is one year long, implying that the simple interest rate is...

Farmer Joe grows wheat and then sells it at the market price one year from now. His total costs are $5 per bushel of wheat. In one year, Grocer Bob buys wheat at the market price and then sells it...

31. You compute the current delta for a 50-60 bull spread with the following information: (i) The continuously compounded risk-free rate is 5%. (ii) The underlying stock pays no dividends. (iii) The...

I need a step by step solutions for the 10 problems in the excel file. The correct answers are provided I only need the solutions steps. Subject is Finance (options valuation) On March 2, a Treasury...

Its been said that a wise person learns from other peoples mistakes. To build on that idea, entrepreneur and author Jim Rohn said, Its important to learn from your mistakes, but it is better to learn...

7. Presidents' Age at Inauguration 65 55 69 61 54 49 46 55 54 55 50 56 56 54 49 58 60 51 43 51 52 68 47 n = = S = 5 number summary: IQR = Range = Outliers? If yes, what numbers are outliers? 8. Men's...

HighGrowth Company has a stock price of $ 2 1 . 9 3 The firm will pay a dividend next year of $ 1 . 2 0 and its dividend is expected to grow at a rate of 4 . 4 % per year thereafter. What is your...

Draw a class diagram and its relationship based on the following statements. You can use any UML tool/software to represent your class diagram. Do NOT copy and paste your diagram, use the attachment...