Mathematics, 25.06.2020 05:01 coolkitty35
An option to buy a stock is priced at $150. If the stock closes above 30 next Thursday, the option will be worth $1000. If it closes below 20, the option will be worth nothing, and if it closes between 20 and 30, the option will be worth $200. A trader thinks there is a 50% chance that the stock will close in the 20-30 range, a 20% chance that it will close above 30, and a 30% chance that it will fall below 20.
Required:
a. Create a valid probability table.
b. How much should the trader expect to gain or lose?
c. Should the trader buy the stock? Explain.
Answers: 2
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An option to buy a stock is priced at $150. If the stock closes above 30 next Thursday, the option w...
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