As a financial analyst at Bank of America Merrill Lynch, you are collecting and analyzing...
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As a financial analyst at Bank of America Merrill Lynch, you are collecting and analyzing data to find the value for a six month European call option and put option on BAC stock. The stock price is currently $50. The strike price is $51. It is known that at the end of six months it will be either $55 or $45. The risk-free interest rate is 12% per year. a. What is the call option delta? (sample answer: 0.75) b. What is the put option delta? (sample answer: 0.75) c. What is the probability of an up movement in a risk-neutral world? (sample answer: 35.50%) d. What is the value of the call option on the stock? (sample answer: $2.50) e. What is the value of the put option on the stock? (sample answer: $2.50)
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