12. The stock of VS is currently selling at $10 per share. If the next year, the company’s stock is expected to be either $15 or $8 per share depending on the economic and company performance. The risk-free rate 18 percent. You are going to buy a one year call option on one share of VS with an exercise price of $12 (Show as detail of your calculation as possible)
a. What is the call option’s payoff if the stock price rises to $15 at expiration (5 pts)? ANS:
b. What is the call option’s payoff if stock price falls to $8 at expiration? (5 pts)? ANS: Apply Binomial Option Pricing Model to answer the questions below for the option value of today.
c. How many shares of the VS stock needed to construct the replicating portfolio? Get Finance homework help today
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