This preview shows page 1. Sign up to view the full content.
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; (1P) = 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....
View
Full
Document
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.
 Spring '08
 Staff
 Options

Click to edit the document details