Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. problem 13-9. consider an option on a non-dividend

Problem 13-9. Consider an option on a non-dividend-paying stock when the stock price is $40,...

70.2K

Verified Solution

Question

Finance

Problem 13-9.

Consider an option on a non-dividend-paying stock when the stock price is $40, the exercise price is $38, the risk-free interest rate is 3% per annum, the volatility is 25% per annum, and the time to maturity is four months.

  1. What is the price of the option if it is a European call?

  2. What is the price of the option if it is an American call?

  3. What is the price of the option if it is a European put?

  4. Verify that putcall parity holds.

Problem 13-10.

Assume that the stock in Problem 13-9 is due to go ex-dividend in 1.5 months. The expected dividend is 60 cents. (Hint: The present value of the dividend stream occurring during the life of the option is relevant.)

a.What is the price of the option if it is a European call?

b.What is the price of the option if it is a European put?

c.Use the results in the Appendix to this chapter to determine whether there are any circumstances under which the option is exercised early.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students