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$84.20
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$84.20
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In this chapter, assume the log-normal model. Unless otherwise stated, assume no arbitrage opportunities
The current spot price of a stock is $73.00, the expected rate of return of the stock is 9.8%, and the volatility is 19%. The risk-free rate
is 4.7%.
Compute the price of a derivative whose payoff in 18 months is
- $13.00 if the stock price in 18 months is below $78.00,
- $6.00 if the stock price in 18 months is between $78.00 and $87.00,
- Nothing if the stock price in 18 months is greater than $87.00
Enter your solution as a dollar value, including dollar symbol ($), to two decimal places.
$84.20