FINANCE
Mock Exam with solutions(2)

# Shares in lmn plc currently trade at 945 there is a

• Test Prep
• 15

Question 16 Shares in LMN plc currently trade at £9.45. There is a 55% probability that the market price will be £12.00 in 6 months' time and a 45% chance that the market price will be £8.00. The discount rate is 6.00% per annum. Using a single-period binomial valuation approach, what is the value of a 6 month call option on LMN shares with a strike price of £9.45? Since a 6 month call, use 6/2=3% as the discount rate Value of the call is 12-9.45=2.55 if the price goes up and 0 otherwise Probability weighted average call value 0.55*2.55+0.45*0=1.4025 Discounted back to today 1.4025/1.03=1.36
This is the end of the preview. Sign up to access the rest of the document.
• Summer '14
• JOHNGODDARD

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern