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Options Solutions 8

# Options Solutions 8 - A \$14.62 B \$11.49 C \$10.40 D \$12.76 E...

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Old Exam Problems - Options - Solutions Page 8 of 13 Pages Call Price = \$22.90 - \$19.83 = \$3.07 Put = Call + Ee -r*t - S Put Price = \$3.07 + 29.76 - \$32.00 = \$0.83 Checked Using the Excel Model : Stock Price = \$32.00 Exercise Price = \$30.00 PV (Exercise) = \$29.76 d1 = 0.5728 N(d1) = 0.7166 d2 = 0.4278 N(d2) = 0.6656 Call Price = \$3.12 Put = Call + Ee -r*t - S = \$3.12 + \$29.76 - \$32.00 = \$0.88 11. Assume that a stock is currently selling for \$50. The stock price could go up by 10% (u = 1.10) or fall by 20% (d = 0.80) each month. The monthly interest rate is 1% (periodic rate). Using the binomial model, calculate the price of a call option on the stock with an exercise price of \$40 and a maturity of one month.
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Unformatted text preview: A. \$14.62 B. \$11.49 * C. \$10.40 D. \$12.76 E. \$13.35 u = 1.10; d = .80; P = (1.01 - .80)/(1.10 - .80) = .70; (1-P) = 1 - .70 = .30 P = \$50 P 1 = (\$50)(1.10) = \$55.00 (\$50)(0.80) = \$40.00 C u = \$55.00 - \$40.00 = \$15.00 C d = \$40.00 - \$40.00 = \$ 0.00 C = [(.70)(\$15.00) + (.30)(\$0.00)]/[1.01] = \$10.40 12. Assume that a stock is currently selling for \$50. The stock price could go up by 10% (u = 1.10) or fall by 20% (d = 0.80) each month. The monthly interest rate is 1% (periodic rate). Using the binomial model, calculate the price of a call option on the stock with an exercise price of \$40 and a maturity of two months....
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