Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Accounting Expert

Provide Answer of the following problems given the following call option prices on Google (GOOG) and on Apple (APPL).
Note that these are actual option prices on 2/21/13 and these contracts have 60 days until expiration. The 2-month T-bill rate is about 4.75%. Attach all work with your appropriate report.

475_stock table.jpg

Part One:

1. Estimate the theoretical option values for the call on GOOG with K =800 and for the call on APPL with K = 450 by using the Black-Scholes-Merton and Binomial Models program. You can also use the following website to evaluate the option prices and implied volatility www.option-price.com

2. When estimating the option values suppose various standard deviations of returns of 10%, 15%, 20%, up to 100% or till you find the theoretical option value is close to the actual one.

3. Draw a graph showing the relationship between option values and standard deviations.

4. Based on the graph, what does the actual option value imply about the anticipated future standard deviation (volatility)? Which option has higher implied volatility and is it surprising?

Part Two:

1. Estimate the historical standard deviation of the GOOG*.

2. Compare the implied standard deviation with the historical standard deviation.

3. What can you infer from the difference, if any, between the two numbers?

Part three:

1. Evaluate the implied volatility for all options.

2. Do you have the same implied volatility for the two options on the same underlying? What may be capable to describe the differences?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93433

Have any Question? 


Related Questions in Financial Accounting

Cruise company produces a part that is used in the

Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this? part, assuming a production level of? 6,000 units, are as? follows: Direct materials ?$4.00 Dir ...

Kyrgyz co sold 200000 of equipment during february under a

Kyrgyz Co. sold $200,000 of equipment during February under a one-year warranty. The cost to repair defects under the warranty is estimated at 6% of the sales price. On July 24, a customer required a $60 part replacement ...

Morrow enterprises inc manufactures bathroom fixtures the

Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc., with balances on January 1, 2016, are as follows: Common stock, $20 stated value; 500,000 shares autho ...

A company has a fiscal year-end of december 31 1 on october

A company has a fiscal year-end of December 31: (1) on October 1, $20,000 was paid for a one-year fire insurance policy; (2) on June 30 the company lent its chief financial officer $18,000; principal and interest at 8% a ...

Abc corporation has provided the following information

ABC Corporation has provided the following information concerning a capital budgeting project: The working capital would be required immediately and would be released for use elsewhere at the end of the project. The comp ...

You are a student preparing for a job interview with a

You are a student preparing for a job interview with a Fortune 100 consumer products manufacturer. You are applying for a job in the Finance Department. This company is known for its rigorous case-based interview process ...

Kiddy toy corporation needs to acquire the use of a machine

Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 8 years and then sold for $23,000 at the ...

1 the federal gift tax return form 709 is generally duea on

1. The federal gift tax return (Form 709) is generally due a. on the same day as the individual income tax return for a calendar year taxpayer. b. on October 15 of the year after the year the gift is made. c. nine months ...

Practice questionscat brook construction ltd is undertaking

Practice questions: Cat brook Construction Ltd is undertaking a contract where the price is £320,000 and the estimated total cost of the contract is estimated at £260,000. At the end of the financial year the cost of wor ...

Reporting issuance and retirement of long-term debton the

Reporting Issuance and Retirement of Long-Term Debt On the basis of the details of the following bonds payable and related discount accounts, indicate the items to be reported in the Financing Activities section of the s ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate