Respuesta :
Answer:
The answer is "11.11"
Explanation:
Given values:
The chances of increasing value by 50% is = 116
The chances of decreasing value by 50% is = 84
So, the two possible stock prices are:
S+ = 116 and S- = 84
The exercise price is = 100 so, possible called value are
Chance of increase (Ci) = 116-100 = 16
Chance of decrease (Cd)= 84 -100 = -16 it is - value that's why we avoid this so it equal to 0.
Formula:
edge ratio = [tex]\frac{(Ci - Cd)}{(S+ - S-)}[/tex]
[tex]= \frac{(16 - 0)}{(116 - 84)} \\\\=\frac{16}{32}\\\\= \frac{1}{2}\\\\= 0.5[/tex]
To develop a risk-free makes the image of one stock share and dual calling in paper. The actual cost of risk-free image is = exercise price- 2C0
= 100 -2C0
= 84 after some years.
The given value is = 84
time = 1 year
interest rate= 8%
interest:
[tex]= \frac{84}{(1+0.08)^1} \\\\= \frac{84}{1.08} \\\\= \frac{84}{\frac{108}{100}} \\\\ = \frac{84 \times 100}{108}\\\\ = 77.78[/tex]
if the edged position is equivalent to the actual payout cost:
[tex]\Rightarrow 100 - 2C0 =77.78 \\\\\Rightarrow 100 -77.78 = 2C0 \\\\\Rightarrow 22.22 = 2C0 \\\\\Rightarrow C0 = \frac{22.22}{2} \\\\\Rightarrow C0= 11.11[/tex]
