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Black-Scholes Model

Johnson 9-3 Technology

Here is the following information about the Johnson 9-3 Technology: Current stock price: 15 Time to maturity of option: 6 months Variance of stock return=0.12 d2=0.00000 N(d2)= 0.50000 Strike price of option: 15 Risk-free rate: 6% d1:0.24495 N(d1)=0.59675 Using the Black -Scholes Option Model, what would be the v

Price of a Call Option Using the Black-Scholes Model

Use the Black-Scholes model to find the price for a call option with the following inputs: (1) Current Stock price is $30 (2) Exercise price is $35 (3) time to expiration is 4 months, (4) annualized risk-free rate of 5%, and (5) variance of stock return is .25

Purcell Industries: Black Scholes Option Pricing Model

Assume you have been given the following information on Purcell Industries Current Stock Price= $15 Exercise Price Option=$15 Time to maturity of option=6 months Risk-free rate=6% d2=.00000 d1=.24495 N(d2)=.50000 N(d1)=.59675 Using the Black-Scholes Option Pri

Question about Value of Call Option using Black-Scholes model

An analyst is interested in using the Black-Scholes model to value call options on the stock of Ledbetter Inc. The analyst has accumulated the following information: · The price of the stock is $40. · The strike price is $40. · The option matures in 3 months (t = 0.25). · The standard

Derivatives- option pricing

Need answers with calculations in Excel spreadsheet. 1. A stock currently sells for $50 and pays no dividends. There is a call option (striking price = $55) on this security that expires in 61 days. At present U.S. Treasury bills are yielding 3.3 percent per year. You estimate the past volatility of the stock returns to be 39

Black-Scholes Valuation Model: Call Option

A) Consider an option on a non-dividend-paying stock when the stock price is $40, the exercise price is $40, the risk-free interest rate is 9%, the volatility is 30% per annum, and the time to maturity is 12 months. Using the Black-Scholes valuation model, what is the price of a European-style call option under these conditions?

Future contracts : margin account, theoretical future price for the contract, hedging price risk using futures, future contract to reduce beta of an investment. Options- put, theoretical value, Black model to compute the value of the call option

1. The CBOT offers a mini Dow Jones future contract. The multiplier on the contract is 10. The initial margin is $6,000; maintenance margin is $2,500. As of the close of trading Monday, February 18 the June contract was priced at 12358. You can find quotes at the Wall Street Journal's Market Data Center. Assume that on Monday

Derivative problems: Option Pricing

Please see the attached file. 1) Option pricing principles are now often used in corporate finance applications. It is common to look at equity in a corporation as an option. What type of option is equity similar to? Discuss what factors would affect the price of equity and in what direction based on this option pricing view.

ESO Plan

Incorporate an ESO plan into a company's valuation. For your company (Dell, Inc), incorporate the effect of the Employee Stock Option (ESO) plan into the common equity valuation. Be sure to consider both the forecasted ESO grants and outstanding ESOs. Perform your valuation in Excel; use appropriate formulas/equations.

Value option with Black-Scholes Option Pricing Model

Assume you have been given the following information on Purcell Industries: Current stock price = $15 Strike price of option = $15 Time to maturity of option = 6 months Risk-free rate = 6% Variance of stock return = 0.12 d1 = 0.24495 d2 = 0.00 N(d1) = 0.59675 N(d2) = 0.5000 Using

Equity and Debt Worth

Fethe Inc. is a custom manufacturer of guitars, mandolins, and other stringed instruments located near Knoxville, Tennessee. Fethe's current value of operations, which is also its value of debt plus equity, is estimated to be $5 million. Fethe has $2 million face-value zero coupon debt that is due in 2 years. The risk-free rate

Black-Scholes Option Pricing Model.

What is the value of a 9-month call with a strike price of $45 given the Black-Scholes Option Pricing Model and the following information? Stock price: $48 Exercise price: $45 Time to expiration: .75 Risk-free rate : .05 N(d1): .718891 N(d2): .641713 A. $2.03 B. $4.86 C. $6.69 D. $8.81 E. $9.27

Derivatives: Call option, Put option, Put-call parity

P15-16. Explain the following paradox. A put option is a highly volatile security. If the underlying stock has a positive beta, then a put option on that stock will have a negative beta (because the put and the stock move in opposite directions). According to the CAPM, an asset with a negative beta, such as the put option, has

Considering Executive Stock Options

Gary Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Mr. Levin 20,000 at-the-money European call options on Mountainbrook's stock, which is currently trading at $50 per share. Mountainbrook's stock pays no dividends. The options will expire in 4 years, and the annual

NPV/Black-Scholes

A company is considering a project with the following data: Initial Cost = $500,000 Cost of Capital = 12% Risk Free Rate = 5% Cash Flows occur for 3 years according to the following: Demand Probability Annual Cash Flow High .30 $270,000 Average

Portfolio Theory and CAPM in Decision Making

1. Why do financial mangers have difficulty applying CAPM in decision making? What benefits does CAPM provide them? 2. Explain why assets must be evaluated in a portfolio context

A Calculate the exercise value of the warrants if the price of the underlying stock is $40. b. How much would an investor likely be willing to pay for the warrant over and above its exercise value ? Why? c. Would the investor likely be willing to pay more or less for the warrant if the stock had a beta of 1.0? Why? d. Is a warrant more similar to a call option or a put option? Why? e. Why might an investor prefer to buy warrants rather than the underlying stock?

Orne Corporation issued bonds with detachable warrants several years ago. Each warrant allows the holder to purchase one share of stock at $30 per share. The stock has a beta of 1.6. a Calculate the exercise value of the warrants if the price of the underlying stock is $40. b. How much would an investor likely be willing

Healthcare related economics and accounting

1. For question 1 refer specifically and directly to attached Mclean c 2 2. For question 2 refer specifically and directly to attached Mclean c 3 We Will provide a rating after evaluation of responses 1. Explain how managed care contracts change agents' incentives to control costs. What agency costs are eliminated

Interest Rate Swaps, Swap Pricing, and Other Derivative Assets

Swaps and Interest Rate Options - What is an interest rate swap? - How do you immunize using interest rate swaps? - What is a comparative advantage in credit market? - What is a currency swap? - What are interest rate collars, swaptions, and interest rate options? Swap Pricing - How swaps are priced? - How

Healthcare Management

The short article below concerns the firing of the CFO of a local hospital. What do you think about this story, especially what it infers about the responsibility of the CFO? Also, what is your opinion of the financial issues brought out in the story? Write a brief paragraph or two of 150 words total or less using MS word to c

Option Pricing Followup Questions

Can you give me some very brief answers to my questions? Option Pricing - What is the law of one price? - How do you determine lower and upper bounds? - How do you use put-call parity? - What is the binomial option-pricing model? - How do you calculate option premiums using the binomial pricing model and put-call par

C&G Corporation: Equity Method Accounting & Stock Options Expense

Please review the attached questions and help provide simple answers. 1. Assume that C&G Corporation acquires a 40% interest in an affiliate for $500 and accounts for this investment using the equity method. The affiliate reports the following summary balance sheet on the date of the acquisition:

Deferred Tax Accounting

Need help with the attcahed questions with respect to the attached 10k. --- 1. HP reports income tax expense of $699 million in its 2004 income statement and describes its income tax expense in Note 12 (pp. 121-124). a. The company reports that it increased its valuation allowance for deferred tax assets by $47 million. Wha

Recognition of Benefit plans: HP financial statement disclosures in the 10K

Please review the attached questions and 10k. I need simple, two line explanations for each. 1. HP provides disclosures related to its pension plans in Note 15 (pp. 129-135). Please answer the following questions based on your reading of this footnote. With respect to only the US Defined Benefit plans and only in 2004, pleas