This preview shows pages 1–2. Sign up to view the full content.
Practice Problems
Econ 435 Fall 2001
1) The RiskFree 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 riskfree 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 riskfree portfolio and its return must be the risk free rate.
Solutions:
1) The RiskFree 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
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
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.
 Fall '08
 CHABOT
 Economics

Click to edit the document details