wk6 - Solutions Tutorial Week 6 Chapter 22 9. a. u = e 0.24...

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Solutions – Tutorial Week 6 Chapter 22 844 . 0 / 1 = = u ; 185 . 1 5 . 0 24 . 0 = = d e u 9. a. $45 $53.33 $37.98 $63.19 $45.01 $45.01 $32.06 887 . 0 / 1 ; 127 . 1 25 . 0 24 . 0 = = = = u d e u $45 $50.72 $57.16 $64.41 $35.41 $50.70 $39.92 $44.98 $39.91 $72.60 $57.14 $57.14 $44.97 $44.97 $35.40 $31.41 $35.40 $27.86
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809 . 0 / 1 = = u , 236 . 1 5 . 0 3 . 0 = = d e u b. $45 $55.62 $36.41 $68.75 $45.00 $45.00 $29.46 861 . 0 / 1 ; 162 . 1 25 . 0 3 . 0 = = = = u d e u $45 $52.29 $60.76 $70.60 $33.36 $52.32 $38.75 $45.02 $38.77 $82.04 $60.79 $60.79 $45.05 $45.05 $33.38 $28.72 $33.38 $24.73
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12. a. The possible prices of Buffelhead stock and the associated call option values (shown in parentheses) are: 220 (?) 110 (?) 440 (?) 55 (0) 220 (55) 880 (715) of a rise in the stock price. Then, if investo + (1 – p) × (–0.50) = 0.10 0, then the option will not be exercis $165) = $275. If the option is not e , the call option will not be exercised, so that its value today [(0.4 × $290) + (0.6 × $20)]/1.10 = $116.36 b. (i) (ii) c. is e ot it is valueless, regardless of the change in the stock price. Let p equal the probability
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This note was uploaded on 05/12/2010 for the course COMMERCE finc at University of Sydney.

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wk6 - Solutions Tutorial Week 6 Chapter 22 9. a. u = e 0.24...

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