Suppose the LEPO has an exercise price of one cent,the share price of the underlying share is currently $13.25,the time to expiry is two months,the risk-free rate is 5.0% p.a.and the present value of the dividend is $0.84.What would be the price of this LEPO?

A) $ \$ 11.97 $
B) $ \$ 12.50 $
C) $ \$ 12.79 $
D) $ \$ 13.00 $

Question

Suppose the LEPO has an exercise price of one cent,the share price of the underlying share is currently $13.25,the time to expiry is two months,the risk-free rate is 5.0% p.a.and the present value of the dividend is $0.84.What would be the price of this LEPO?

A) $ \$ 11.97 $
B) $ \$ 12.50 $
C) $ \$ 12.79 $
D) $ \$ 13.00 $

Quizplus · Accepted Answer

Using equation 17.1,we can calculate the value of the LEPO as follows: (13.25 - 0.84)e^0.05F1F1F1S1^F1F1F10^0.166666 - 0.01 = $12.50.

Suppose the LEPO Has an Exercise Price of One Cent,the $11.97 \$ 11.97 $11.97

Suppose the LEPO Has an Exercise Price of One Cent,the $\$ 11.97$