Exercises 1. Suppose you have European call on a stock with: *Current stock price is $50...

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Exercises 1. Suppose you have European call on a stock with: *Current stock price is $50 *There is one period to go *Stock price will either go up to $75 or go down to $25 *There are no cash dividends *The strike price is $50 *One period borrowing and lending rate is 10% compound annually T = 1year evaluate the price of this European call option. 2. Suppose the current price of NNS stock is $100 per share. In of the next two years, the stock price will either increase by 20% or decrease by 20%. The 5% one-year risk-free rate of interest will remain constant. Calculate the price of a two-year European put option on NNS stock with a strike price $100 by using the Binomial Option pricing model? Dr.Rehab Alsultan (UQU) Options 590 October 17, 2020 26/28 QUESTION 10 Bob purchased a promissory note on January 1st, 2009 which agreed to pay simple interest in the amount 8.0% per year. The note will mature and be paid on April 1st, 2009, 90 days later. Bob sells the note to Sally on February 12th, 2009 (i.e. 42 days after purchasing) for an amount that causes Sally's yield rate on the note to be equivalent to simple interest of 6.3% per year. Sally cashes in the note on April 1st, 2009 for 5000.00. Note: There are 365 days in a year. What is Bob's annual yield rate (simple interest) on the note? Give your answer as a percentage rounded to two places. Do not round your calculations, at least not too much, until the very end. Exercises 1. Suppose you have European call on a stock with: *Current stock price is $50 *There is one period to go *Stock price will either go up to $75 or go down to $25 *There are no cash dividends *The strike price is $50 *One period borrowing and lending rate is 10% compound annually T = 1year evaluate the price of this European call option. 2. Suppose the current price of NNS stock is $100 per share. In of the next two years, the stock price will either increase by 20% or decrease by 20%. The 5% one-year risk-free rate of interest will remain constant. Calculate the price of a two-year European put option on NNS stock with a strike price $100 by using the Binomial Option pricing model? Dr.Rehab Alsultan (UQU) Options 590 October 17, 2020 26/28 QUESTION 10 Bob purchased a promissory note on January 1st, 2009 which agreed to pay simple interest in the amount 8.0% per year. The note will mature and be paid on April 1st, 2009, 90 days later. Bob sells the note to Sally on February 12th, 2009 (i.e. 42 days after purchasing) for an amount that causes Sally's yield rate on the note to be equivalent to simple interest of 6.3% per year. Sally cashes in the note on April 1st, 2009 for 5000.00. Note: There are 365 days in a year. What is Bob's annual yield rate (simple interest) on the note? Give your answer as a percentage rounded to two places. Do not round your calculations, at least not too much, until the very end.

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Exercise 1 European Call Option Pricing Given Current stock price S 50 Upward stock price Su 75 Downward stock price Sd 25 Strike price K 50 Oneperiod borrowing and lending rate r 10 compounded annual... View the full answer