FRM Quiz on Option pricing

mayankmundhra30
Good Student
Posts: 23
Joined: Sat Jun 25, 2016 8:13 am

FRM Quiz on Option pricing

Postby mayankmundhra30 » Sat Aug 20, 2016 10:14 am

There is a question asked in the quiz on option pricing
Consider a nondividend paying stock currently priced at $37, it is known with certainty that over the next two 3-month periods the price will either rise by 5% or fall by 5%. The continuously compounded risk free rate is 7%, calculate the value of a 6-month European call option with a strike price at $38.
Choose one answer.
a. 1.065 Incorrect
b. 1.234 Correct
c. 1.856 Incorrect
d. 2.71 Incorrect
The correct answer is B: 1.234. Please explain how to do it.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: FRM Quiz on Option pricing

Postby edupristine » Fri Aug 26, 2016 7:14 am

Please find the excel attached with solution.
Attachments
Option Pricing.xlsx
(10.33 KiB) Downloaded 51 times

mayankmundhra30
Good Student
Posts: 23
Joined: Sat Jun 25, 2016 8:13 am

Re: FRM Quiz on Option pricing

Postby mayankmundhra30 » Sun Aug 28, 2016 4:22 am

Thank you for the solution. Could you please clear my other queries on financila market product


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