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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.

 

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