Binomial Modeling

Video Excel Online Structured Activity: Binomial Model The current price of a stock is $19. In 1 year, the price will be either $28 or $14. The annual risk-free rate is 7%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet Find the price of a call option on the stock that has a strike price is of $23 and that expires in 1 year. (Hint: Use daily compounding.) Assume 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent. Binomial Model Current price High price, Year 1 Low price, Year 1 Risk-free rate, PRF Strike price Time until expiration (in years) Number of days per year S19.00 $28.00 $14.00 7.00% $23.00 1.00 365 Outcome Price up Stock Price $28.00 Strike Price $23.00 Option Payoff $5.00 $23.00 Price down Range $14.00 $14.00 $0.00 $5.00 Formulas Vumber of shares of stock to purchase to create hedge portfolio, Ns : #N/A Hedge portfolio's payoff if stock price up #N/A Hedge portfolio's payoff if stock price down #N/A Present value of hedge portfolio #N/A Value of call option. Vc #N/A Video Excel Online Structured Activity: Binomial Model The current price of a stock is $19. In 1 year, the price will be either $28 or $14. The annual risk-free rate is 7%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet Find the price of a call option on the stock that has a strike price is of $23 and that expires in 1 year. (Hint: Use daily compounding.) Assume 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent. Binomial Model Current price High price, Year 1 Low price, Year 1 Risk-free rate, PRF Strike price Time until expiration (in years) Number of days per year S19.00 $28.00 $14.00 7.00% $23.00 1.00 365 Outcome Price up Stock Price $28.00 Strike Price $23.00 Option Payoff $5.00 $23.00 Price down Range $14.00 $14.00 $0.00 $5.00 Formulas Vumber of shares of stock to purchase to create hedge portfolio, Ns : #N/A Hedge portfolio's payoff if stock price up #N/A Hedge portfolio's payoff if stock price down #N/A Present value of hedge portfolio #N/A Value of call option. Vc #N/A