Put option with otherwise identical european put option

Assignment Help Financial Management

Reference no: EM131864229

You are required to price a put option on XYZ.com with an exercise price of $60 and six months to expiration. The current stock price of XYZ.com is $62, the risk free rate is 12% p.a. (c.c.) and the volatility of the stock price of XYZ.com is 40% p.a.. XYZ.com will pay a dividend of $1 in exactly four months’ time. This put option is to be priced using a two-period binomial option pricing model, with three months in each period.

Required:

(a) Draw the two-period tree diagram for the adjusted stock price (that recognizes the impact of the dividend) of XYZ.com. Show the expiration date payoffs from the put option.

(b) Compare an American put option with an otherwise identical European put option on the stock of XYZ.com. What is the value of the right to exercise the put option before expiry?

Reference no: EM131864229

Questions Cloud

What is the present value of annuity due : What is the present value of an annuity due that pays $1,500 per year for 8 years, assuming the annual discount rate is 8 percent?

Find the break even point and the shut down point : What will be the optimal quantity produced by the firm if the market price is P = 300? Find the break even point and the shut down point.

Ordinary people from the community : Our system of justice provides that a jury should be comprised of one's peers. This means that ordinary people from the community

Discuss the impact on relational maintenance : Describe how the advantages and disadvantages of mediated communication influence your interpersonal relationships. Consider loss of nonverbal cues.

Put option with otherwise identical european put option : Compare an American put option with an otherwise identical European put option on the stock of XYZ.com.

Job characteristics model : According to the job characteristics model, what factors lead to internal motivation? How can criminal justice leaders use this information to motivate employee

What way does specialization reduce problem of scarcity : In what way does specialization reduce the problem of scarcity?

Discuss properties of action observation-reflection model : Explain how you can use knowledge about each of the following to enrich the benefits of your own present leadership experiences.

Reasons and the sentencing options : If you were a pre-sentence officer, discuss your reasons and the sentencing options you might recommend to the judge in the case of a seriously mentally

User Account

All Pages