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1 year ago

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The stock price of Bravo Corp. is currently $100. The stock price a year from now will be either $160 or $60 with equal probabil

ities. The interest rate at which investors invest in riskless assets is 6%. Using the binomial OPM, the value of a put option with an exercise price of $135 and an expiration date 1 year from now should be worth __________ today.
$34.09

$37.50

$38.21

$45.45

I know the answer should be 38.21.

1 answer:

slavikrds [6]1 year ago

7 0

Answer:

correct option is $38.21

Explanation:

given data

stock price = $100

stock price = either $160 or $60

interest rate = 6%

exercise price = $135

solution

we get here Hedge ratio that is express as

Hedge ratio = (Pay off in case price appreciates - Pay off in case price depreciates) ÷ (Appreciated price - Depreciated price) ..................1

put here value we get

Hedge ratio = ( Max [$135 - $160, $0] - Max[$135 - $60, $0]) ÷ ($160 - $60)

Hedge ratio = $\frac{$0 - $75}{$100}$

Hedge ratio = - 0.75

so here Price of Put option is

Price of Put option = -Hedge ratio × {Appreciated price ÷ (1 + risk free rate) - Present stock price}

Price of Put option = -(-0.75) × $\frac{160}{1+0.06} - 100$

Price of Put option = $38.21

so here correct option is $38.21

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2 years ago

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The answer is "The group of a range of age, color, sexual orientation, financial backgrounds, employment and age differences".

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2 years ago

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3. Assuming the same sales mix, at what total sales level would Pure Water be indifferent between using the old equipment and bu

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Answer:

The question is not complete. I want to assume the correct question is this:

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Assuming the same sales mix, at what total sales level would Crystal Clear be indifferent between using the old equipment and buying the new production equipment? If total sales are expected to be 24,000 units, should Crystal Clear buy the new production equipment?

Explanation:

Let b be the total sales volume at which the company's indifference is based

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The profit will be 80b - 1200000

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The profit will be 88b - 1408000

Now let us equate the two average contributions to get:

80b - 1200000 = 88b - 1408000

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88b - 80b -1408000 = -1200000

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1 year ago

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1 year ago