# pdf[1] - Problem 9(Chapter 15 Q30 of BKM7(15 points...

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Problem 9 (Chapter 15: Q30 of BKM7) (15 points) Consider an increase in the volatility of the stock in the previous Problem 8. Instead of the possibility of the price going up to \$120 it could go up to SI 30 and instead of the possibility of going down to \$ 80 it could go down to \$70. Show that the value of the call • option is greater hi this case than what you found using the original assumptions in Probiem 8. . jr \ltdwir \fJkl\i1j

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Problem 8 (Chapter 15: Q29 of BKM7) (15 points) You are attempting to value a call option with an exercise price of \$100 and one year to expiration, The underlying stock pays no dividends, its current price is S100, and you believe it has a 50% chance of increasing to S120 and a 50% chance of decreasing to \$80. The risk-free rate of interest is 10%. Calculate the call option's value using the two-state stock price model. Y - /0T> T- I £„ -- in S u - Ho ^A - 2o HI = 1,2. d - O.I >• Ska/i 1 nit. o - o - fo
X Problem 7 (Chapter 15: Q7 of BKM7) (10 points) Use the Black-Scholes formula to find the value of a call european option on the following stock: (A)Time to maturity = 6 months (B) Standard deviation = 50% per year (C) Exercise price = \$50 (D)Stock price = \$50 (E) Interest rate = 10%. lot

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## This note was uploaded on 01/21/2011 for the course FIN 3710 taught by Professor Staff during the Spring '08 term at CUNY Baruch.

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pdf[1] - Problem 9(Chapter 15 Q30 of BKM7(15 points...

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