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Stocks and Options Options: Black-Scholes

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Please help with the following problem. Provide the solution in Excel.

Consider the following. You hold an American call on company S that will expire in one year. The stock is currently priced in the market at 100. and your exercise price is 75. In six months tile cmpan will spin-off one of its subsidiaries. B. Note that tile options will not be adjusted for the spin-off. and the shares you can buy with your options will not receive shares ill B. Your company will. independent of your options position. own a 10% share in the new company B. Your company paid S 15 for that position a month ago. Assuming that the volatility of S is 40%. what should be the price of this option? What assitniptions do you have to make about this valuation? Can you apply Black Scholes directly? If not, how do you have to modify it?

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Solution Summary

This solution helps with problems involving stocks and options. The explanation is provided in Excel.

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Formula Value
Stock's current market price S0 100
Exercise price X 75
Option price (a month ...

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