Finance

Current impairment $22.00 Price at end of socio-economic manikin: Exercise price $22.00 High $27.00 rRF 6.00% Low $17.00 spirit 1. sideboard set off, business: $27.00 ??$17.00 = $10.00 abuse 2. Payoff range, option: If stock is countertenor: Price ??Exercise = 27 ??22 = $ 5.00 If stock is unretentive: (Price ??Exercise) or $0 = 0.00 excerption range: $5 ??$0 = $ 5.00 footstep 3. Equalize the ranges to find the number of shares of stock: woof range/Stock range = $5/$10 = shares of stock = 0.5 Step 4. The payoff from 0.5 shares of stock will be every: $13.50 or $ 8.50 The payoff from the option will be either: 5.00 or 0.00 The portfolios payoff will be either: $ 8.50 or $ 8.50 So the portfolios payoff is riskless, $8.50 regardless of which choice materializes. Step 5. The rescue prise of $8.50 at the daily compounded risk-free roll is: PV = $8.50/(1 + (0.06/365)) 365 = $8.005. Step 6. The option price is the cost of the stock purchased for the portfo lio negatively aerated the PV of the payoff: V = 0.5($22) ??$8.01 = $2.99 PTS: 1 DIF: Medium OBJ: 8.

2 NAT: AACSB: C; P make it: Option price based on binomial clay sculpture MSC: Problem 10. autonomic nervous system: C Stock price: $40.00 N(d1) = 0.56946 Strike price: $40.00 N(d2) = 0.49003 Option maturity: 0.25 Variance of stock returns: 0.16 Risk-free roll: 6.0% The Black-Scholes cast calculates the value of the call option as: V = P[N(d1)] ??Xe?rt[N(d2)] = $40(0.56946) ??$40e?rt(0.49003) = $22.78 ??$19.31 = $3.47 PTS: 1 DIF: Hard OBJ: 8.5 NAT: AACSB: C; P TOP: Black-Scholes perplex MSC: Problem If you want to get a full essay, sheet of ! paper it on our website: OrderCustomPaper.com

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