Consider the following data: • Price of stock now - P-900 . Standard deviation of continuously compounded annual returns -0.25784 .Years to maturity = t = 0.5 . Interest rate per annum=r=0.5% for 6 months (1% per annum) Beta of the stock = 1.5 • Risk-free loan beta=0 a-1. Calculate the risk (beta) of a six-month call option with an exercise price of $900. (Do not round intermediate calculations. Round your answer to 2 decimal places.) a-2. Calculate the risk (beta) of a six-month call option with an exercise price of $750. (Do not round intermediate calculations. Round your answer to 2 decimal places.) a-3. Does the risk rise or fall as the exercise price is reduced? b-1. Now calculate the risk of a one-year call with an exercise price of $750. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b-1. Does the risk rise or fall as the maturity of the option lengthens? a-1. Risk of call option a-2. Risk of call option a-3. Option risk b-1. Risk of call option b-2. Option risk 10.95

Consider the following data: • Price of stock now - P-900 . Standard deviation of continuously compounded annual returns -0.25784 .Years to maturity = t = 0.5 . Interest rate per annum=r=0.5% for 6 months (1% per annum) Beta of the stock = 1.5 • Risk-free loan beta=0 a-1. Calculate the risk (beta) of a six-month call option with an exercise price of $900. (Do not round intermediate calculations. Round your answer to 2 decimal places.) a-2. Calculate the risk (beta) of a six-month call option with an exercise price of $750. (Do not round intermediate calculations. Round your answer to 2 decimal places.) a-3. Does the risk rise or fall as the exercise price is reduced? b-1. Now calculate the risk of a one-year call with an exercise price of $750. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b-1. Does the risk rise or fall as the maturity of the option lengthens? a-1. Risk of call option a-2. Risk of call option a-3. Option risk b-1. Risk of call option b-2. Option risk 10.95

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following data for a certain share. Current Price = S0 = Rs. 80 Exercise Price = E = Rs. 90 Standard deviation of continuously compounded annual return = \sigma = 0.5 Expiration period of the call option = 3 months Risk – free interest rate per annum = 6 percent a. What is the value of the call option? Use the normal distribution table. b. What is the value of a put option?
Consider the following data for a certain share. Current Price = So = Rs. 80 Exercise Price = E = Rs. 90 Standard deviation of continuously compounded annual return = 0 = 0.5 Expiration period of the call option 3 months Risk – free interest rate per annum = 6 percent a. What is the value of the call option? Use the normal distribution table. b. What is the value of a put option?
Consider the following information on a particular stock: Stock price = $89 Exercise price = $85 Risk-free rate = 3% per year, compounded continuously Maturity = 8 months Standard deviation = 59% per year 1. What is the delta of a call option? 2. What is the delta of a put option?
Find the implied volatility (to 2 decimals, for example, �=8.23% ) of a Put option with a time to expiration of 11 months and a price of $6.13 The stock is currently trading at $47. The riskless rate is 2% per annum, and the strike/exercise price of the option is $50. Hint: compute the Put price using the same formula as in exercise 4 , as a function of the volatility �. Then use Solver to change the volatility cell in order to obtain a price of $6.13 \table[[�1=,-0.0614997,,So =,47],[�2=,,4,�=,50],[,,,�=,2%
Consider a stock with a current price of P = $27.Suppose that over the next 6 months the stockprice will either go up by a factor of 1.41 or downby a factor of 0.71. Consider a call option on thestock with a strike price of $25 that expires in6 months. The risk-free rate is 6%.(1) Using the binomial model, what are the endingvalues of the stock price? What are the payoffsof the call option?
Consider the following information on a particular stock:Stock price = $88Exercise price = $84Risk-free rate = 5% per year, compounded continuouslyMaturity = 11 monthsStandard deviation =53% per year. What What is the delta of a call option?
Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e., annualized standard deviation) of σ = 0.34. What would be the appropriate values for u and d if your binomial model is set up using: 1 period of 1 year. 4 subperiods, each 3 months. 12 subperiods, each 1 month.
What are the prices of a call option and a put option with the following characteristics? Stock price = $93 Excerise price = $90 Risk - free rate = 4% per year, compounded continuously Maturity = 5 months Standard deviation = 62% per year
Consider the following information on a particular stock:Stock price = $88Exercise price = $84Risk-free rate = 5% per year, compounded continuouslyMaturity = 11 monthsStandard deviation =53% per year. What What is the delta of a put option?
You have found the following information: Stock Price = $90.00 Exercise price = $96.00 Call price = $5.00 Put price = $10.00 Expiration is in 6 months What is the risk-free rate implied by these prices?
Consider shorting a call option c on a stock S where S = 24 is the value of the stock, K = 30 is the strike price, T = ½ is the expiration date, r = 0.04 is the continuously compounded interest rate per year, and  = 0.3 is the volatility of the price of the stock. Determine the delta ratio Δ .
Assume that the CAPM holds. Stock ABC has the expected return of ABC = volatility of σABC = 28%. It has a market beta of BABC The expected return on the market portfolio is TM σM = 30%. = = 0.6. 7.4% per year and return 12%, and the return volatility of the market portfolio is The annual risk-free rate is rf = 5%. Compute the CAPM alpha of ABC. % Compute the volatility of the idiosyncratic component of return of ABC. %

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