The current price of Estelle Corporation stock is $ 20.00
1. The current price of Estelle Corporation stock is $ 20.00. In each of the next two years, this stock price will either go up by 23% or go down by 23 % The stock pays no dividends. The one-year risk-free interest rate is 6.9% and will remain constant. Using the Binomial Model, calculate the price of a one-year put option on Estelle stock with a strike price of $20.00.The price of the one-year put option is= (Round to the nearest cent).2. Roslin Robotics stock has a volatility of 24% and a current stock price of $54 per share. Roslin pays no dividends. The risk-free interest is 4 % Determine theBlack-Scholes value of a one-year, at-the-money call option on Roslin stock.The Black-Scholes value of a one-year, at-the-money call option on Roslin stock is ___________ (Round to the nearest cent.)3. Eagletron's current stock price is $ 10 Suppose that over the current year, the stock price will either increase by 95 % or decrease by 54 % Also, the risk-free rate is 25 % (EAR).a. What is the value today of a one-year at-the-money European put option on Eagletron stock?b. What is the value today of a one-year European put option on Eagletron stock with a strike price of $19.50?c. Suppose the put options in parts(a) and (b) could either be exercised immediately, or in one year. What would their values be in this case?static/image/hrline/4.gif
ANSWER1 - calculate the price of a one-year put option on Estelle stock with a strike price of $20.00.Each subset term can be written using binary expansionfor UP U = (1+0.23) = 1.23 and D = (1-0.23) = 0.77Scenario 1Stock price = initial stock price X price adjustment factor = 20 X 0.77 = $ 15.40Call price at time 1 = max (0, 15.4 - 20) = $ 0Put price at time 1 = max (0, 20 - 14.4) = $ 4.60Scenario 2Stock price = initial stock price X price adjustment factor = 20 X 1.23 = $ 24.60Call price at time 1 = max (0, 24.6 - 20) = $ 4.60Put price at time 1 = max (0, 20 - 24.6) = $ 0.002) TheBlack-Scholes value of a one-year, at-the-money call option on Roslin stock is$ 54
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