10. You are evaluating TSLA stock at a price of $200. It is rumored AAPL will...

  

Transcribed Image Text:

10. You are evaluating TSLA stock at a price of $200. It is rumored AAPL will potentially announce a buyout for TSLA in the next 3 months. If they do, you believe the stock will rise to $300. If the rumor is not true you believe the stock will fall to $160, a. If the risk free rate of return over the next 3 months is 5%, using a one period binomial model what should the price of a call be with a $225 strike price with 3 months to expiration? b. What would the hedge ratio be of the above call? c. What is the p-ratio (Binomial probability) of the above Binomial model? d. If you sold one call (representing 100 shares) what would you need to do with the underlying stock to get "delta neutral"? e. Assume there is a put with the same expiration and strike price. What should be the price of the put (assuming they are European)? 10. You are evaluating TSLA stock at a price of $200. It is rumored AAPL will potentially announce a buyout for TSLA in the next 3 months. If they do, you believe the stock will rise to $300. If the rumor is not true you believe the stock will fall to $160, a. If the risk free rate of return over the next 3 months is 5%, using a one period binomial model what should the price of a call be with a $225 strike price with 3 months to expiration? b. What would the hedge ratio be of the above call? c. What is the p-ratio (Binomial probability) of the above Binomial model? d. If you sold one call (representing 100 shares) what would you need to do with the underlying stock to get "delta neutral"? e. Assume there is a put with the same expiration and strike price. What should be the price of the put (assuming they are European)?

Answer rating: 100% (QA)

a Calculating price of call with strike price 225 Up ward in stock price ... View the full answer