--%>

Problem on binomial option pricing model

The share price of Cheung Kong (Holdings) Limited is currently at $100. Over each of the next two three-month periods, you expect its price will either increase by 10% or fall by 10% in each three-month period. If the Hong Kong interbank offered rate is 8% per annum with continuous compounding, evaluate the price of a six-month American put option with a strike price of $95 using a binomial option pricing model.

   Related Questions in Corporate Finance

  • Q : Is depreciation is the loss of value of

    Is the depreciation is the loss of value of fixed assets?

  • Q : Explain useful properties of

    Explain useful properties of low-discrepancy sequence theory or quasi random number theory.

  • Q : What is the Free Cash Flow Is the Free

    Is the Free Cash Flow (FCF) the sum of the debt cash flow and the equity cash flow?

  • Q : Is it possible to use a constant WACC

    Is this possible to use a constant WACC in the valuation of a company along with a changing debt?

  • Q : What repercussions do variations in

    What repercussions do variations in the oil price have on the value of a company?

  • Q : What is the current example of a value

    What is the current example of a value company and would you buy it as an investment. Why or why not?

  • Q : Explain merits and demerits of standard

    Explain merits and demerits of standard market practice to find the volatility as a function of underlying.

  • Q : Why required return cannot computed by

    Why can we not compute the required return (Ke) by the Gordon-Shapiro model [P0 = Div0 (1+g) / (Ke – g)] in place of using the CAPM? As we identify the current dividend (Div0) and the current share price (P0), we can acquire the growth rate of the dividend by th

  • Q : Assessing market expectations using CAPM

    Assume that the risk-free rate is 1% and the expected market return is 9%. You are considering purchasing Super Soft stock, which currently sells for $100 a share and will pay its next (annual) dividend of $1.00 exactly one year from today. Super Soft is considered to

  • Q : Explain the structure

    Our company (A) is going to buy the other company (B). We need to value the shares of B and, thus, we will use three options of the structure Debt/Shareholders’ Equity in order to obtain the WACC as: 1) Present structure of A