1. ABC inc. stock is currently selling for $30, one year from today the stock price can either increase by 20% or decrease by 15%. The probability of an increase in the stock price is equal to 0.3. The one-year risk-free rate is 5% What is the value of a European put that expires in one year with an exercise price of $24. 2. Graphically, show the value and the profit and loss of the following butterfly position: Long in a call with an exercise price of $30, short in 2 calls with an exercise price of $45, and long in a call with an exercise price of 60. All calls are written on the same stock and have the same maturity. 3. "Early exercise of an American option on a stock that does not pay any dividend is not optimal regardless of whether the option is a Call or a Put". True, False, or Uncertain. Explain.
1. ABC inc. stock is currently selling for $30, one year from today the stock price can either increase by 20% or decrease by 15%. The probability of an increase in the stock price is equal to 0.3. The one-year risk-free rate is 5% What is the value of a European put that expires in one year with an exercise price of $24. 2. Graphically, show the value and the profit and loss of the following butterfly position: Long in a call with an exercise price of $30, short in 2 calls with an exercise price of $45, and long in a call with an exercise price of 60. All calls are written on the same stock and have the same maturity. 3. "Early exercise of an American option on a stock that does not pay any dividend is not optimal regardless of whether the option is a Call or a Put". True, False, or Uncertain. Explain.
Chapter6: Exponential And Logarithmic Functions
Section6.1: Exponential Functions
Problem 3SE: The Oxford Dictionary defines the word nominal asa value that is “stated or expressed but...
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Transcribed Image Text:1. ABC inc. stock is currently selling for $30, one year from today the stock price can either increase by 20% or decrease
by 15%. The probability of an increase in the stock price is equal to 0.3. The one-year risk-free rate is 5% What is the
value of a European put that expires in one year with an exercise price of $24. 2. Graphically, show the value and the
profit and loss of the following butterfly position: Long in a call with an exercise price of $30, short in 2 calls with an
exercise price of $45, and long in a call with an exercise price of 60. All calls are written on the same stock and have the
same maturity. 3. "Early exercise of an American option on a stock that does not pay any dividend is not optimal
regardless of whether the option is a Call or a Put". True, False, or Uncertain. Explain.
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