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Use your spreadsheet from Question 1 to price a call option with a stock price of $80, a strike price of $75, 3 months to maturity, a 5% risk-free rate of return, and a standard deviation of return of 20% on the underlying stock. Check it against the solution in Question 2.
Question 1Write a computer spreadsheet that computes the Black-Scholes value on row 4 as a function of its five inputs (in the first two rows). This will teach you more about the Black-Scholes formula than all the pages in this book. Recall that the normal distribution function is normsdist.
Question 2Price a call option with a stock price of $80, a strike price of $75, 3 months to maturity, a 5% risk-free rate of return, and a standard deviation of 20% on the underlying stock.
Becky Fenton has 30/60/15 automobile insurance coverage. If two other people are awarded $70000 each for injuries in an auto accident in which Becky was judged at fault, how much of this judgment would the insurance cover?
Here are the data on $1000 par value bonds issued by Microsoft, GE Capital, and Morgan Stanley at the end of 2012. Assume you are thinking about buying these bonds as of January 2013. How would the value of the bonds change if (1) your required rate ..
A loan is amortized over five years with monthly payments (i.e. end of month) at an annual nominal interest rate of 5% compounded monthly. The first payment is 500 and is to be paid one month from the date of the loan. Each succeeding monthly payment..
An all equity firm (i.e. no debt) it expected to produce cash flow in the amount of $110,000 in its first year of operation. Cash flow is expected to grow at 1% for the forseeable future. If the firm's investors require 15% return, what is the Market..
What will the holder receive when the bond matures? If the current rate of interest on a comparable debt is 8 percent, what should be the price of this bond? Would you expect the firm to call this bond Why?
You own a 10 year, $1000 par value bond paying 7.5 percent interest annually. The market price of the bond is $900, and your required rate of return is 11 percent. compute the bond's expected rate of return. determine the value of the bond to you, gi..
Which of the following could explain why Regal had a negative net cash flow even though the cash on its balance sheet increased? a. The company repurchased 20% of its common stock b. the company sold a new issue of bonds c. the company made a large i..
From the Book: Green to Gold Business Playbook by Etsy and Simmons. How could vendors be encouraged to participate in Wal-Mart China’s sustainability initiatives? What are the distinguishing features of Wal-Mart China’s distribution system?
Synergy between two companies: Compound rates, not discount rates, are used in an attempt to?
You are going to save money for your son’s education. You have decided to place $2,539 every half year at the end of the period into a saving account earning 8.14 percent per year, compounded semi-annually for the next 9 years. How much money will be..
Suppose a company has net income of $1000,000 and a plowback ratio of 40%. There are 50,000 shares of stock outstanding. The company plans to increase dividends by 22% each year for the next 2 years and then apply a 2.25% growth rate to dividends eac..
Sock Company sells almost exact 200 units of a product per month on a continuous basis. The product carrying costs are 60 dollars per year and ordering costs are 250 dollars per order. It takes 20 days to receive a shipment after an order is placed a..
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