Options Solutions 6

Options Solutions 6 - Weekly = 52 Daily = 252 Annualized σ...

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Old Exam Problems - Options - Solutions Page 6 of 13 Pages * D. $12.67 E. $13.23 PV(EX) = $50 / (e .04 ) = $48.04 d 1 = {[LN($60 / $48.04)] / (.20)(1)} + [(.20)(1)/2] = 1.21 d 2 = = 1.21 - (.20)(1) = 1.01 N(d 1 ) = .8869 N(d 2 ) = .8438 C 0 = (.8869)($60.00) - (.8438)($48.04) = $53.21 - $40.54 = $12.67 8. Assume that you calculate the standard deviation of a security’s returns to be 5.04% using monthly data. Determine the annualized standard deviation of these returns using the method discussed in class with respect to the case Ito’s Dilemma. A. 18.23% * B. 17.46% C. 19.87% D. 16.59% E. 20.92% To annualize a standard deviation you simply take the periodic standard deviation and multiply by the square root of the number of periods within a year: Monthly = 12;
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Unformatted text preview: Weekly = 52; Daily = 252. Annualized σ = (Monthly σ )* (12) 1/2 = (0.0504)*(3.4641) = 17.46% 9. Assume that you have a call option with a strike (exercise) price of $45, a current stock price of $52, 146 days until expiration, and an annualized standard deviation of 28.24%. Assuming a risk-free rate of 4.00 percent, and using the cumulative probability tables provided at the end of this exam, determine the price of this call option using the Black-Scholes Option Pricing Formula. (Take all preliminary numbers out to 9 decimal places.) A. $10.85 B. $ 3.07 C. $12.36 * D. $ 8.59 E. $ 5.92 PV (Exercise) = ($45.00)*e-(.04)*(146/365) = $44.29 d 1 = {[ln($52.00/$44.29)] / (.2824)*(146/365) 1/2 } + [(.2824)*(146/365) 1/2 / 2]...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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