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Option Pricing Problem

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Questions and Answers

What is the current market price of the stock, and what is the exercise price of the call and put options?

The current market price of the stock is $57, and the exercise price of the call and put options is $60.

What is the time period until the options expire, and how is the risk-free rate compounded?

The options expire in 4 months, and the risk-free rate is compounded continuously at 6% per year.

What is the volatility of the stock, and how is it measured?

The volatility of the stock is 54% per year, measured as the standard deviation.

How do the exercise price and current market price of the stock relate to the call option's value?

<p>The call option's value is influenced by the difference between the current market price ($57) and the exercise price ($60), which is $3 in the money.</p> Signup and view all the answers

What factors would affect the prices of the call and put options, given the provided characteristics?

<p>The prices of the call and put options would be affected by the stock price, exercise price, risk-free rate, time to maturity, and volatility.</p> Signup and view all the answers

Study Notes

Option Characteristics

Stock price is $57.
Exercise price is $60.
Risk-free rate is 6% per year, compounded continuously.
Maturity is 4 months.
Standard deviation is 54% per year.

Note:

No specific prices of call option and put option are provided.

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Description

Calculate the prices of a call option and a put option given the stock prices, exercise price, risk-free rate, maturity, and standard deviation. This quiz tests your understanding of option pricing models.