P0 = 45 X = 40 U = 1.15 Rfr = 4% European Option - 2 period. What is the value of the two-period 40 CALL on this stock?
4.2934
Sorry - let me give you options A. 6.65 B. 8.86 C. 9.21
U=.6 D=.4 approx Option values in various scenarios C2 = (UU=19.51, UD= 5, D=0) Values above to be discounted to 1st Year C1 = (U= .6*19.51 + .4*5/ (1.04) equates to 13.17, D = .6*5/1.04 = 2.88) Values computed above to be discounted to present So C0= .6*13.17 + .4*2.88 divided bu 1.04 which equals 8.70 approx Is it correct…had to do the calculations on windows+R >>> Calc
So 8.86…please tell me that i shot it…
I get 8.9 after rounding, assuming 1 period is a year. So, B.
Correct. B is the right ans.
The closest answer should be b i think. Assuming U=1/D, D=1/1.15=0.86959 Pi = (1+Rf-D)/(U-D)=0.607759 1-Pi = 0.39224 C++ = 19.5125, C± = 4.99973 and C-- = 0 C+ = [Pi*C++ + (1-Pi)C±]/(1+Rf) = 13.2888 C- = [Pi*C± + (1-Pi)C–]/(1+Rf) = 2.92176 C0 = [Pi*C+ + (1-Pi)C-]/(1+Rf) = 8.86759
b but i come up with 8.71 19.5 in money 5 in money .6and .4 probability discount at 1.04
same problem what is call delta
Sorry I’m a bit confused. How did you get 19.51?
45*1.15*1.15 - 40 = 19.5125
isn’t this from 3 PM?
Usually I do them right on the calculator and boom ans in < 30 secs. Somhow I missed to calculate the middle node and wasted 10 mins on it, then when I did it on paper drawing the tree and all, the ans matched with the option. Lesson learnt. Despite of you warning me, I have nuked the RI vignette - 1/6 and over 40 mins wasted there.
swaptiongamma Wrote: ------------------------------------------------------- > Usually I do them right on the calculator and boom > ans in < 30 secs. Somhow I missed to calculate the > middle node and wasted 10 mins on it, then when I > did it on paper drawing the tree and all, the ans > matched with the option. Lesson learnt. > > Despite of you warning me, I have nuked the RI > vignette - 1/6 and over 40 mins wasted there. welcome to the club. What confuses in that section is they have given fcking CF statement, BS and Income statement which are useless. Then somewhere in the corner they have mentioned that EPS is $6.50 for 2009 and divident payout is 5%. Very CFAI thing…why the fcuk they like these corners of the pages to put information.
cfaboston28 Wrote: ------------------------------------------------------- > swaptiongamma Wrote: > -------------------------------------------------- > ----- > > Usually I do them right on the calculator and > boom > > ans in < 30 secs. Somhow I missed to calculate > the > > middle node and wasted 10 mins on it, then when > I > > did it on paper drawing the tree and all, the > ans > > matched with the option. Lesson learnt. > > > > Despite of you warning me, I have nuked the RI > > vignette - 1/6 and over 40 mins wasted there. > > > welcome to the club. What confuses in that section > is they have given fcking CF statement, BS and > Income statement which are useless. Then somewhere > in the corner they have mentioned that EPS is > $6.50 for 2009 and divident payout is 5%. > > Very CFAI thing…why the fcuk they like these > corners of the pages to put information. Ya…they seem to like to put crucial information aat the most obscure of places. yikes.
So aggravating. I got A and then I realized that I valued ud at 45, but forgot the strike was 40 and not 45 (but at the same time valuing uu and the payoff from that correctly). I need to stop making stupid mistakes like this and get my head in the game.
I forgot to consider that the C± actually has value when combined with C-- to calculate C-. I think it was because I was influenced by that one question we did when there was a shortcut and you didn’t have to consider any of the down moves. If the strike price was something like 46, that would’ve worked. I’ve learned my lesson.
Ali - EXACTLY! You got it what I did in the calculator (in those 30s) - the quick method and completely missed to calculate C±. haha Indeed, Lesson learnt!
alimesoda Wrote: ------------------------------------------------------- > b but i come up with 8.71 19.5 in money 5 in > money .6and .4 probability discount at 1.04 anyone?