Suppose that we have a stock with a price of $75. We want to price a call
Question:
Suppose that we have a stock with a price of $75. We want to price a call option using the binomial model that has a strike price of $82. We are going to use steps of 5 days and price it for 20 days, so today plus four more time steps. The stock has a volatility of 47% and the risk free rate is 1%.
What is our DOWN multiplier?
| A. | .9324 | |
| B. | .9465 | |
| C. | 1.034 | |
| D. | 1.567 |
Suppose that we have a stock with a price of $75. We want to price a call option using the binomial model that has a strike price of $82. We are going to use steps of 5 days and price it for 20 days, so today plus four more time steps. The stock has a volatility of 47% and the risk-free rate is 1%.
What is the highest stock price on day 10?
| A. | $67.55 | |
| B. | $83.72 | |
| C. | $95.78 | |
| D. | $108.83 |
Suppose that we have a stock with a price of $75. We want to price a call option using the binomial model that has a strike price of $82. We are going to use steps of 5 days and price it for 20 days, so today plus four more time steps. The stock has a volatility of 47% and the risk-free rate is 1%.
What is the call option premium on day 20 for the stock price of $67.19?
| A. | $0 | |
| B. | $.10 | |
| C. | $.78 | |
| D. | $1.83 |
Expert Answer:
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Financial Theory and Corporate Policy
ISBN: 978-0321127211
4th edition
Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri
