8-1
A call option on Bedrock Boulders stock has a market price of $7. The stock sells for $30 a share and the option has an exercise price of $25 a share.
a. What is the exercise value of the call option?
b. What is the premium on the option?

8-3

Assume that you have been given the following information on Purcell Industries.
Current Stock price=$15 Strike price of option =$15
Time to maturity of option =6 mos Risk-free rate =6%
Variance of stock return=0.12
d1 = 0.24495 N(d1) =0.59675
d2 = 0.00000 N(d2)= 0.50000
According to the Black-Scholes option pricing model, what is the options' value?

8-4

The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with an exercise price of $32 and one-year until expiration has a current value of $6.56.
What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?

8-6
The current price of a stock is $20 . In 1 year, the price will be either $26 or $16. The annual risk -free rate is 5%. Find the price of a call option on the stock that has a strike price of $21 and that expires in 1 year. (Hint: Use daily compounding.)

Solution Summary

Assume that you have been given the following information on Purcell Industries.
According to the Black-Scholes option pricing model, what is the options' value?

OK, please correct me if I am wrong, but a putoption is when your stock is sold automatically when the price drops below a certain level.
a call is the option to purchase stock at a given price.
If you have the amount that a putoption would cost - how would you figure out what a calloption would cost?
3 month put optio

AD 13: The Dow Jones Industrial Average on August 15, 2008 was 11,660 and the price of the December 117 call was $3.50. Assume the risk-free rate is 4.2%, the dividend yield is 2% and the option expires on December 25 (options markets are closed the day after Christmas).
Q1: Use Derivagem to calculate the implied volatility o

A stock has a spot price of $35. Its May options are about to expire. One of its puts is worth $5 and one of its calls is worth $5. The exercise price of the put must be ___A__ and the exercise price of the call must be ___B__. (please show work for A & B)

1. Given the following:
S=$68, C=$15, Rf =10%, X=$60, and time to maturity of call = 3 month.
a. What is the value of a put with the same characteristics as the call above?
b. Suppose that the put in part "a" is trading for $ 3.00: Indicate clearly the transactions you should undertake in order to create a risk-free arbitrage

P15-16. Explain the following paradox. A putoption is a highly volatile security. If the underlying stock has a positive beta, then a putoption on that stock will have a negative beta (because the put and the stock move in opposite directions).
According to the CAPM, an asset with a negative beta, such as the putoption, has

The current price of a stock is $33, and the annual risk-free rate is 6%. A calloption with an exercise price of $32 and one-year until expiration has a current value of $6.56.
What is the value of a putoption written on the stock with the same exercise price and expiration date as the calloption?

1) Consider a stock currently selling for $80. It can go up or down by 15% per period. The risk-free rate is 6%. Use a one period binomial model. You want to price a European calloption with exercise price of $84.
a. Determine the two possible stock prices at expiration.
b. Construct two portfolios with equivalent payoffs. On

Construct a spreadsheet that can be used for calculating Black-Scholes calloption prices. Before proceeding, verify your model using the following parameters:
St = $60.00
K = $60.00
rf = 0.025
T = 0.5 (6 months)
σ = 0.35
Ct = $6.2523
1. Using the values of K, rf, T, and σ specified above, tabulate and plot c

Construct a spreadsheet that can be used for calculating Black-Scholes calloption prices. Before proceeding, verify your model using the following parameters:
St = $60.00
K = $60.00
rf = 0.02
T = 0.3333 (3 months)
sigma (volatility) = 0.49
Ct = $6.8927
1. Using the values of K, rf, T, and sigma; specified above, t