Question: You are valuing a put option using a binomial pricing model. The stock is currently priced at $82. The option is set to expire in

You are valuing a put option using a binomial pricing model. The stock is currently priced at $82. The option is set to expire in three years. The strike price on the option is $78 and the risk-free rate is 4.5%. You estimate the percentage change in stock price for an up move is 120% and 90% for a down move.

What is the value of this put option today?

What is the probability of this put option expiring worthless?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

You are valuing a call option using a binomial pricing model. The stock is currently priced at $82. The option is set to expire in three years. The strike price on the option is $88 and the risk-free...

The stock of Golden Corp. is currently trading for $15 per share. It pays no dividends. In one year, the stock price will either go up by 20% or go down by 20%. The one-year risk-free rate is 4% and...

Exercise: Valuing a European Put Option Using a Binomial Tree Consider a stock that is currently priced at $ 1 0 0 . Over the next two periods ( each period could represent, for example, three months...

Valuing a European Put Option Using a Binomial Tree Consider a stock that is currently priced at $ 1 0 0 . Over the next two periods ( each period could represent, for example, three months ) , the...

Consider the binomial option pricing model. A stock is currently priced at $120 and 53 days from now the price will be either $134 or $98. The risk-free rate is 1.75%.a strike price of K = $118?...

Given the following information: The underlying stock price is $47, and the exercise price is $43. The risk-free rate is 2.78 percent continuously compounded, and the standard deviation is 0.75. The...

la. (2 marks) Using a binomial pricing model, what is the impact on the price of a call option if the company increases the dividend paid to shareholders? The call option price: A. Will drop B. Will...

Hey, could you please help me out asap with this? 5. a. (8 points) The current price of KD Industries stock is $20. In the next year the stock price will either go up by 20% or go down by 20%. KD...

Could you answer the following finance question please? 5. a. (8 points) The current price of KD Industries stock is $20. In the next year the stock price will either go up by 20% or go down by 20%....

of the next two years, this stock price can wither go up by $3.00 or go down by $2.00. Kinston stock pays no dividends. The one year risk-free interest rate is 5% and will remain constant. A) Using...

Calculate the total attenuation for a 4 km path, with equal height antennas, and three knife-edges with excess heights of 50 m, 100 m, and 50 m (in that order) equally spaced Terrestrial Fixed Links...

Snowy Alps Ltd reported the following information in its financial statements: 2021 2020 $ $ Sales Revenue 852,500 650,000 Cost of Sales 576,000 474,500 Net Profit 152,000 138,000 Total Current...

2 Copy and complete the boxes to show two different ways to multiply 6 by 58. a 6x58 6(50+8) b 6x58 6(60-2) X 50 8 6 658=+= X 60 -2 6 658=+=

Draw a class diagram and its relationship based on the following statements. You can use any UML tool/software to represent your class diagram. Do NOT copy and paste your diagram, use the attachment...