Given a LEPO price of $0.01,a share price of $5,time to expiry of six months,a risk-free rate of 5% p.a.and a dividend present value of $0.25,what is the value the LEPO?

A) $ \$ 3.64 $
B) $ \$ 4.31 $
C) $ \$ 4.82 $
D) $ \$ 5.04 $

Question

Given a LEPO price of $0.01,a share price of $5,time to expiry of six months,a risk-free rate of 5% p.a.and a dividend present value of $0.25,what is the value the LEPO?

A) $ \$ 3.64 $
B) $ \$ 4.31 $
C) $ \$ 4.82 $
D) $ \$ 5.04 $

Quizplus · Accepted Answer

According to equation 17.1,we can calculate the value of the LEPO as follows: (5 - 0.25)e^0.05F1F1F1S1^F1F1F10^0.5 - 0.01 = $4.82.

Given a LEPO Price of $0 $3.64 \$ 3.64 $3.64 B) $4.31 \$ 4.31 $4.31

Given a LEPO Price of $0 $\$ 3.64$ B) $\$ 4.31$