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Consider a six-month European call option on a non-dividend-paying stock. The stock price is $30, the strike price is $29, and the continuously compounded risk-free interest rate is 6% per annum. The volatility of the stock is 20% per annum.
1) Value this option using the Black-Scholes formula. Illustrate each step in your calculation.
2) Please use a one-step binomial tree to value this option.
3) Please use a two-step binomial tree to value this option.
4) Compare the results from 2) to 3) with what you get using the Black-Scholes Merton formula.
A bond with a face value of $1,000 has annual coupon payments of $100 and was issued 7 years ago. The bond currently sells for $1,000 and has 8 years remaining to maturity. This bond’s must be 10%. I. yield to maturity II. Market premium III. coupon ..
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