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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