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Widget Corporation's stock price will increase by...

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Widget Corporation's stock price will increase by 25% or decrease by 20% each year. The current stock price is $100 and annual interest rates are 5%. a. What is the price of a one-year European put option with an exercise price of $90? What are the intrinsic value and the time value? b. What is the price of a one-year European call option with an exercise price of $90? What are the intrinsic value and the time value? c. Is your answer to a) and b) consistent with put-call parity? d. What is the price of a two-year European call option with an exercise price of $90?

 

Paper#4137 | Written in 18-Jul-2015

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