Find out the price of a call with a strike

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Reference no: EM1393626

Q. 1. Explain how to solve (PVIFA8%, 5yrs)

2. A non-dividend paying stock is presently priced at $30/share. You figure which one year from now, the price of the stock will have either gone up to $45/share or down to $25/share. The risk free, continuously compounded interest rate is 4%.

a) Use the Two State (Binomial) Option Pricing Model to find out the price of a call with a strike of $30 also an expiration date one year from now. b) Use your answer above also the principle of put call parity to find out the price of a put with a strike price of $30 also an expiration date one year from now.

Reference no: EM1393626

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