FIN 4750 - Question 12.26 So=$30 K=$29 (a)

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So=$30 Rf=5% T= 13 K=$29 δ=25% (a) d1= + + lnSoK Rf δ22Tδ * T = +. +. . ln3029 05 252213 25 * 13 = 0.42252 N(d1)= 66.367% d2=d1- δ* T =0.42252-.25* 13 =0.2782 N(d2)= 60.956% C=So*N(d1)-K - e rT *N(d2)=30*.66367-29* -. * / e 05 1 3 *.60956=$2.52 The price of a European call is $2.52. (b) Since it’s not optimal to exercise a non-paying dividend American option before the expiration date, the value of the American call and the European call are equal. www.de Therefore, C=So*N(d1)-K - e rT *N(d2)=30*.66367-29* -. * / e 05 1 3 *.60956=$2.52 The price of an American call is $2.52. (c) N(-d1)=N(-.42252)= 0.33632 N(-d2)=N(-.2782)= 0.39043 P= K - e rT *N(-d2)- So*N(-d1) = 29* -. * / e 05 1 3 *.39043- 30*.33632=$1.05 The price of a European put is $1.05. (d) C-P=So-K - e rT 2.52-1.05=30-29 -. * / e 05 1 3 1.47=1.47 Since both sides are equal, put-call parity holds. Question 13.20 So=$0.85 for 1 Canadian dollar. K=$0.85 for 1 Canadian dollar.
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This note was uploaded on 12/06/2009 for the course FINANCE 4750 taught by Professor Karnik during the Spring '09 term at CUNY Baruch.

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FIN 4750 - Question 12.26 So=$30 K=$29 (a)

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