Options Solutions 10

# Options Solutions 10 - (u = 1.30 or fall by 20(d = 0.80...

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Old Exam Problems - Options - Solutions Page 10 of 13 Pages N(d 1 ) = 0.6844 d 2 = 0.475815666 - 0.303578655 = 0.172237011 = 0.17 N(d 2 ) = 0.5675 Call Price = (\$38.00)*(0.6844) - (\$34.44)*(0.5675) Call Price = \$26.01 - \$19.54 = \$6.47 Put = Call + Ee -r*t - S Put Price = \$6.47 + 34.44 - \$38.00 = \$2.91 Checked Using the Excel Model : Stock Price = \$38.00 Exercise Price = \$35.00 PV (Exercise) = \$34.44 d1 = 0.4754 N(d1) = 0.6827 d2 = 0.1718 N(d2) = 0.5682 Call Price = \$6.37 Put = Call + Ee -r*t - S = \$6.37 + \$34.44 - \$38.00 \$2.82 14. Assume that a stock is currently selling for \$80. The stock price could go up by 30%
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Unformatted text preview: (u = 1.30) or fall by 20% (d = 0.80) each period. The periodic interest rate is 1% (1% each period). Using the binomial model, calculate the price of a call option on the stock with an exercise price of \$75 and a maturity of two periods. A. \$15.09 B. \$13.75 C. \$16.48 * D. \$14.33 E. \$15.84 u = 1.30; d = .80; P = (1.01 - .80)/(1.30 - .80) = .42; (1-P) = 1 - .42 = .58 P = \$80 P 1 = (\$80)(1.30) = \$104.00 (\$80)(0.80) = \$ 64.00 P 2 = (\$80)(1.30)(1.30) = \$135.20 (\$80)(1.30)(0.80) = \$ 83.20 (\$80)(0.80)(1.30) = \$ 83.20 (\$80)(0.80)(0.80) = \$ 51.20...
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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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