Options Solutions 9

Options Solutions 9 - 13. Assume that you have a call...

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Old Exam Problems - Options - Solutions Page 9 of 13 Pages 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 0 = $50 P 1 = ($50)(1.10) = $55.00 ($50)(0.80) = $40.00 P 2 = ($50)(1.10)(1.10) = $60.50 ($50)(1.10)(0.80) = $44.00 ($50)(0.80)(1.10) = $44.00 ($50)(0.80)(0.80) = $32.00 C uu = $60.50 - $40.00 = $20.50 C ud = $44.00 - $40.00 = $ 4.00 C du = $44.00 - $40.00 = $ 4.00 C dd = $32.00 - $40.00 = $ 0.00 C u = [(.70)($20.50) + (.30)($ 4.00)]/[1.01] = $15.40 C d = [(.70)($ 4.00) + (.30)($ 0.00)]/[1.01] = $ 2.77 C 0 = [(.70)($15.40) + (.30)($ 2.77)]/[1.01] = $11.49
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Unformatted text preview: 13. Assume that you have a call option with a strike (exercise) price of $35, a current stock price of $38, 146 days until expiration, and an annualized standard deviation of 48.00%. Assuming a risk-free rate of 4.00 percent, calculate the price of an equivalent put option (same parameters). (Take all preliminary numbers out to 9 decimal places.) A. $1.84 B. $2.20 * C. $2.91 D. $1.65 E. $3.27 PV (Exercise) = ($35.00)*e-(.04)*(146/365) = $34.44 d 1 = {[ln($38.00/$34.44)] / (.48)*(146/365) 1/2 } + [(.48)*(146/365) 1/2 / 2] d 1 = 0.098367480 / 0.303578655 + 0.151789328 = 0.475815666 = 0.48...
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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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