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Assume that you have been given the following information on Purcell Industries: – RoyalCustomEssays

Assume that you have been given the following information on Purcell Industries:

FNCE 401v6-problems
July 2, 2018
AC330 Financial Accounting, Analysis and Valuation Class Exercises 2012-13
July 2, 2018
0

1. Assume that you have been given the following information on Purcell Industries:Current stock price = $15 Strike price of option = $15Time to maturity of option = 6 months Risk-free rate = 6%Variance of stock return = 0.12d1 = 0.24495 N(d1) = 0.59675d2 = 0.00000 N(d2) = 0.500002. The current price of a stock is $20. In 1 year, the price will be either $26 or $16. Theannual risk-free rate is 5%. Find the price of a call option on the stock that has a strikeprice of $21 and that expires in 1 year. (Hint: Use daily compounding.)

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