Question 3 Total 20 Marks A The Current Price Of Kinston Corporation Stock Is 10 In 6 Months This Stock Price Ca 1 (59.93 KiB) Viewed 56 times
Question 3 Total 20 Marks A The Current Price Of Kinston Corporation Stock Is 10 In 6 Months This Stock Price Ca 2 (11.54 KiB) Viewed 56 times
Question 3 (total 20 marks) (a). The current price of Kinston Corporation stock is $10. In 6 months, this stock price can wither increase by 10% or decrease by 5%. Kinston stock pays no dividends. The effective annual risk-free interest rate is 6.1%. UBS issues European call options with a strike price of $8 and will expire in 0.5 year. (i). Indicate whether the option is in-the-money, at-the-money or out-of-the money. (2 marks)
(ii). Calculate the value of the option using risk neutral binomial model. (8 marks)
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