European call options which is granted at-the-money

Assignment Help Financial Management

Reference no: EM13971921

Patriot Corp. compensates executives with 10-year European call options which is granted at-the-money. If there is a signi?cant drop in the share price, the company’s board will reset the strike price of the options to equal the new share price. Then, the maturity of the repriced option will equal the remaining maturity of the original option. Suppose σ = 30%, r = 6%, δ = 0, and the original share price is $100. Calculate the following: a. the value at grant of an option that will not be repriced b. the value at grant of an option that is repriced when the share price reaches $60 c. the repricing trigger that maximizes the initial value of the option

Reference no: EM13971921

Questions Cloud

What is the future value at discount rate of percent : Paradise, Inc., has identified an investment project with the following cash flows. Year Cash Flow 1 $940 2 1,090 3 1,340 4 1,405 Required: (a) If the discount rate is 8 percent, what is the future value of these cash flows in year 4? (b) What is the..

What is the standard deviation of orange : The return on the Rush Corporation in the state of recession is estimated to be -23% and the return on Rush in the state of boom is estimated to be 31%. The return on the Oberman Corporation in the state of recession is estimated to be 41% and the re..

Ethical requirements as outlined in the sarbanes-oxley act : Assess the ethical requirements as outlined in the Sarbanes-Oxley Act, indicating whether or not you believe the requirements are adequate to ensure integrity in financial accounting and reporting activities. Suggest improvements that may be needed w..

Derive the stock price of pilana : We have the following information for the Pilana Company. The stock pays a $10 dividend, and it will grow by 100% the first year, 30% the second year and 3% forever after that. The unlevered beta is 1, D/E is 60/40 and the tax rate is .3. Additiona..

European call options which is granted at-the-money : Patriot Corp. compensates executives with 10-year European call options which is granted at-the-money. If there is a signi?cant drop in the share price, the company’s board will reset the strike price of the options to equal the new share price. the ..

Classified as foreign source for tax purposes : USco, a domestic corporation, produces industrial engines at its United States plant for sale in the United States and Canada. USco also has a plant in Canada that performs the final stages of production with respect to the engines sold in Canada. Ho..

The qualifier for a financial advisor : The qualifier for a financial advisor would be ________.

Compute the book value-liquidation value-replacement value : We know the following about Mansur. Total assets are $1000m, E is $700m, cash is $100m and the # of shares is 1m. We estimate that the market value of equity is 2 times the book value of it. Finally, a fire sale of the firm would bring 70% of the val..

What is the correlation coefficient between toyota and honda : Toyota Corp.'s stock price has a variance of returns of 0.0295. Honda Corp.'s stock has a variance of returns of 0.0515. The covariance between Toyota and Honda is 0.0275. What is the correlation coefficient between Toyota and Honda?

User Account

All Pages