1.Alpha Company’s equity is currently selling for Rs. 100 per share. In a year from now it can rise to Rs. 150 or fall to Rs. 90. The interest rate is 15 percent. What is the value of a call option on Alpha Company’s equity as per the Binomial model? The exercise price is Rs. 100.
2. Beta Company’s equity is currently selling for Rs. 60. In a year from now it can rise or fall. On the downside it may fall to Rs. 45. The call option on Beta’s equity has a value of Rs. 5. If the interest rate is 16 percent, to what level would Beta’s equity rise on the upside? Assume that
the excise price is Rs. 60.
