- +1-530-264-8006
- info@tutorsglobe.com

Suppose a stock which pays no dividends sells for 10 today

Problem 5 Suppose a stock, which pays no dividends, sells for $10 today. Next period, it will either move to $7 or $14. You do not know the probabilities of these two outcomes. Riskless zero coupon bonds, paying $1.10 in one period, cost $1.00 today.

1. What price would an at-the-money call sell for today?

2. If you wished to synthetically manufacture the at-the-money call option, how many bonds would you buy? How many shares of stock?

3. If the call sold for $3.00, how would you capture arbitrage profits?

4. Now, consider what the stock might do in the second period. If it moves to $14 in the first period, it can either move up to $18 or down to $11 in the second period. If it moves to $7 in the first period, it can either move up to $11 or down to $4 in the second period. Assuming that riskless zero-coupon bonds, paying $1.10 in the second period, cost $1.00 at the end of the first period, what price would an at-the-money call sell for today?

Expected delivery within 24 Hoursrs

18,76,764

Questions

Asked

21,311

Experts

9,67,568

Questions

Answered

Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

Submit Assignment2015 © Tutors Globe. All rights reserved.

## Q : Antonios is analyzing a project with an initial cost of

antonios is analyzing a project with an initial cost of 44000 and cash inflows of 26000 a year for 2 years this project