Quiz+V+practice - Quiz V Practice Problems Econ 435 Fall...

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Practice Problems Econ 435 Fall 2001 1) The Risk-Free Rate is 5% A stock is currently worth $100. Each period the stock will increase or decrease by 25%. There exists a put option on this stock, with an $80 strike price. The put option expires two periods in the future. What is the price of this put option? 2) The risk-free rate is 5%. Stock XYZ has a price of $50. A call option on XYZ expires in one year, has a strike price of 55, and a price of $3. What is the price of a put option on XYZ that expires in one year and has a strike price of 55? (hint form a risk-free portfolio and its return must be the risk free rate. Solutions: 1) The Risk-Free Rate is 5% A stock is currently worth $100. Each period the stock will increase or decrease by 25%. There exists a put option on this stock, with an $80 strike price. The put option expires two periods in the future. What is the price of this put option? Stock Price
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This test prep was uploaded on 04/09/2008 for the course ECON 435 taught by Professor Chabot during the Fall '08 term at University of Michigan.

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Quiz+V+practice - Quiz V Practice Problems Econ 435 Fall...

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