Question: Answer Both Questions Please! Question 1 Assuming a stock currently trades at $50, the risk-free interest rate is 3.125%. If a call option with a

Answer Both Questions Please!

Question 1

Assuming a stock currently trades at $50, the risk-free interest rate is 3.125%. If a call option with a strike price of $53.50 has a volatility of 20%, and the time to expiration is six months, what is the put option price using a one-step binomial tree? Assume the up and down factors are 1.2 and .95, respectively.

	a	$3.50
	b	$4.35
	c	$3.68

Question 2

What is the price of a stock futures contract, given that one-year calls and puts with a strike price of $105 are available at prices of $5 and $7, respectively? The risk-free rate of interest is 2.0%. Use put-call parity.

	a	103.16
	b	$100.92
	c	105.26

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!

ANSWER ALL PARTS AND QUESTIONS part 1 Assuming a stock trades at $50, the risk-free interest rate is 3.125%. If a call option with a strike price of $53.50 has a volatility of 20%, and the time to...

Assuming a stock currently trades at $50, the risk-free interest rate is 3. 125%. If a call option with a strike price of $53.50 has a volatlity of 20%, and the time to expiration is six months, what...

Show all the working correctly 44. Consider the following three-period binomial tree model for a stock that pays dividends continuously at a rate proportional to its price. The length of each period...

All the parts should be well calculated, dont give the answer without calculations please 44. Consider the following three-period binomial tree model for a stock that pays dividends continuously at a...

Show all the workings 44. Consider the following three-period binomial tree model for a stock that pays dividends continuously at a rate proportional to its price. The length of each period is 1...

Answer correctly. 11:58 P - XO ... OB/s O Mil all 1 17% 50. Assume the Black-Scholes framework. You are given the following information for a stock that pays dividends continuously at a rate...

All questions should be well explained 47. Several months ago, an investor sold 100 units of a one-year European call option on a nondividend-paying stock. She immediately delta-hedged the commitment...

Question 5 (a) The current market price of a three-month European put option on a non-dividend paying stock with a strike price of 43 is 5.50. The stock price is 45.00, and the risk-free interest...

answer these questions please, it is from derivative module (a) Under the terms of an interest rate swap, you have agreed to pay a fixed swap rate of 3.4% per annum and to receive six month LIBOR in...

A conducting wire of parabolic shape, initially y = x, is moving with velocity V = Vi in a magnetic uniform field = B. (1 + (2)") k non B=B 1+ Bo, L and are positive constants and A is the potential...

Describe the High involvement purchase vs. low involvement purchase

The average expense ratio for managed stock mutual funds is around ( 1 pts ) Question 2 - The average expense ratio for managed stock mutual funds is around 7 1 . 0 percent. 0 . 7 1 percent. 1 4 . 2...

On 1 March 2007 DB Limited issued R560 000 15% debentures at R98. The debentures were to be redeemed at par in four equal annual payments starting 28 February 2010. Required: Journalise the above...