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Task1. The stock of S Corp is currently trading at the market price of $60 per share. Throughout the next two years the return on S Corp stock will have an annual standard deviation of 45%. The risk free rate is 3% per year compounded continuously. The American call option on S Corp having a strike price of $57.50 and 18 months to expiration has hedge ratio of .6681. The risk-adjusted probability that the 18 month $57.50 call option will finish in money is .4535. Supposing S Corp is not anticipated to pay a dividend throughout the upcoming two years, determine

i) The value of American call option on S Corp with 18 months to expiration and $57.50 strike price

ii) The risk adjusted probability that European put option on S Corp having 18 months to expiration and strike price of $57.50 will finish in money.

iii) The value of European put option on S Corp having 18 months to expiration and strike price of $57.50.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M94184

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