Q-1
.
The current stock price be SAR 50 and that can go up or down by 20 percent per period. The risk-free rate is 10 percent. Use one binomial period.
a) Determine the two possible stock prices for the next period.
b) Determine the intrinsic values at expiration of a European call option with an exercise price of SAR 45.
c) Find the value of the option today.
d) Calculate the hedge ratio.
Q-2. Explain the concept of moneyness?
Q-3. Explain the Options and discuss the difference between American and European options.
College of Administrative and Financial Sciences
Assignment 1
Academic Year: 2nd-2021-2022-1442/1443 H
Course Name: Derivatives
Student’s Name:
Course Code: FIN405
Student’s ID Number:
Semester: 2 Semester
CRN: 25531
For Instructor’s Use only
Instructor’s Name:
Students’ Grade: Marks Obtained/Out of Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
•
The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
•
Assignments submitted through email will not be accepted.
•
Students are advised to make their work clear and well presented; marks may be reduced
for poor presentation. This includes filling your information on the cover page.
•
Students must mention question number clearly in their answer.
•
Late submission will NOT be accepted.
•
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks.
•
All answered must be typed using Times New Roman (size 12, double-spaced) font.
•
Submissions without cover page will NOT be accepted.
Assignment 1
Submission Date by students: End of week-7 (12/03/2022 )-11:59 PM
Place of Submission: Students Grade Centre via blackboard.
Marks: 10 Marks
Assignment Purposes/Learning Outcomes:
LO 1. Recognize call and put options and their use in investment management.
LO 2. Describe trading strategy which incorporates the use of call and put options.
Assignment Question(s):
(Marks 10)
Q-1. The current stock price be SAR 50 and that can go up or down by 20 percent per period.
The risk-free rate is 10 percent. Use one binomial period.
(5 Marks)
a) Determine the two possible stock prices for the next period.
(1 Mark)
b) Determine the intrinsic values at expiration of a European call option with an exercise price of
SAR 45.
(1.5 Marks)
c) Find the value of the option today.
(1.5 Marks)
d) Calculate the hedge ratio.
(1 Mark)
Q-2. Explain the concept of moneyness?
(3 Marks)
Q-3. Explain the Options and discuss the difference between American and European options.
(2 Marks)
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