Suppose you have a call option on a stock with a strike price of $20.
A) Fill in the stock price and strike price in the table and calculate the exercise value.
B) Plot the Stock price on the x-axis and the Exercise value on the y-axis. Be sure to label both axes with titles and include a chart title.
Now assume you have the following data for a call option:
Current stock price $65.00
Strike price $70.00
Time to expiration .50
Risk-free rate 6%
Stock return standard deviation 50.00%
C) Fill in the components of the Black-Scholes model and calculate d1 and d2.D) Calculate the value of N(d1) and N(d2) using the Excel function and find the value of Vc.
Now use the binomial option pricing model in conjunction with the following data to value a call option:
Current stock price, P = $27.00
Risk-free rate, rRF = 6%
Strike price, X = $25.00
Up factor for stock price, u = 1.41
Down factor for stock price, d = 0.71
Years to expiration, t = 0.50
E) Calculate the stock price using the binomial model and find the option payoff in each case, in addition to the value of NS.
F) Calculate the portfolio payoff in each case and find the present value of the payoff, in addition to the value of the call option.