FINACE 4310- The following information is provided in the context

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QUESTION 4Use the following information to answer the next three questionsThe following information is provided in the context of a two period (two six month periods) binomial option pricing model. A stock currently trades at $60 per share, a call option on the stock has an exercise price of $65. The stock is equally likely to rise by 15% or fall by 15% during each six month period. The one-year risk free rate is 3%.Find the probability that the stock rises each period. Round intermediate steps and your final answer to four decimals..4504.5496.9324.06766.25 points QUESTION 5Find the value of the American call today. Round intermediate steps and your final answer to four decimals and your final answer to two decimals.4.217.772.172.836.25 points QUESTION 6Find the present value of a European call given the same information listed in question 4.6.25 points QUESTION 7Use the following information to answer the next two questionsThe following information is provided in the context of a two period (two three month periods) binomial option pricing model. A stock currently trades at $40 per share, a put option on the stock has an exercise price of $39. The stock is equally likely to rise by 10% or fall by 10% during each three month period. The one-year risk free rate is 8%.Find the value of an American put. Round intermediate steps to four decimals. Round your final answer to two decimals.1.031.192.261.766.25 points QUESTION 8Find the value of a European put. Round intermediate steps to four decimals. Round your final answer to two decimals.1.031.191.762.266.25 points QUESTION 9Hedge ratios specify the number of puts or calls that must be written or purchased to eliminate the risk associated with changes in the value of the underlying asset. True False6.25 points QUESTION 10The current value of XYZ Inc is 100. You expect XYZ could move by 20% in either direction over the next three months. The annual risk free rate is 2%. Find the value of a three month call on XYZ stock with an exercise price of $110. Round intermediate steps to four decimals and your final answer to two decimals. Do not enter a dollar sign when inputting your answer.6.25 points QUESTION 11Based on the information in the previous question, an investor that owns 1000 shares of XYZ can hedge their position by buying 4000 shares worth of call options. True False6.25 points QUESTION 12There is an inverse relationship between the value of a call option on a stock and the dividend that the stock pays. True False6.25 points QUESTION 13An American call option on Jones Corp. that expires in 6 months sells for $15. The strike price is $50 and the underlying stock currently sells for $60. Find the time value of the option. Do not enter a dollar sign when inputting your answer.6.25 points QUESTION 14Assume that you create a hedged portfolio consisting of a long position in stock and enough call options contracts to eliminate the price risk. The expected return of your portfolio will be zero since the variance in your returns will be zero. True False6.25 points QUESTION 15Suppose a stock currently sells for $80 but could go up by 10 percent or down by 2 percent over the next six months. A six month American put on the stock has an exercise price of $83. Find the value of the put option today if the annual risk free rate is 6%. Round intermediate steps to four decimals and your final answer to two decimals. Do not use the dollar sign when entering your response.6.25 points QUESTION 16Suppose that the option in the previous question was a European put. How would this change affect your answer to the previous question?The European put would be worth more than the American put.The European put would be worth the same as the American put.The European put would be worth less than the American put.Cannot be determined.

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