Answered step by step
Verified Expert Solution
Question
1 Approved Answer
please show equations and steps used-thanks! 10. (10pts) Suppose you recently got a job offer from Tesla. As part of its employee incentive plan, the
please show equations and steps used-thanks! 10. (10pts) Suppose you recently got a job offer from Tesla. As part of its employee incentive plan, the employment contract grants you the right to buy 100 shares of Tesla stock one year from now (European call option) with an exercise price of $1000. The current price of Tesla is $900 per share. Based on its historical volatility, you estimate that the Tesla stock will be either $450 or $1800 on expiration date. Suppose the risk-free rate is 2% for one year. Using a one-step binomial tree model, answer the following questions: A. What is the payoff of one such call option under each outcome? B. What is the risk-neutral probability that the price will go up to $1800 ? C. What is the expected payoff for one option? D. what is the total value of the option to buy 100 shares stocks
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started