BSM model. Mars Corp. common shares aretrading at $46 on the market. Currently, thecontinuously compounded risk - free rate is 9% peryear and the annual standard deviation of thecontinuously compounded rate of return on Marsshares is 16%. There are put and call options onMars common shares with an exercise price of $48and a 180-day expiry date? Using the Black-Scholes option pricing model, calculate thefollowing: Notes: 1. The cumulative standardnormal table is available on Moodle. 2. Use fullaccuracy in all the calculations excep for finding N(d1,2) These values are supposed to come fromthe table, which has 2 decimals accuracy. Thus, ifyou are using Excel you must round the argumentsof d1,2 to 2 decimals, and N(d1, 2) to 4 decimals. a.What is the value of d1 ? Number Round youranswer to two decimal places. b. What is the valueof call delta? Number Round your answer to fourdecimal places. c. What is the value of the calloption? $ Number Round your answer to twodecimal places. d. What is the value of the putoption?

Black-Scholes Model Calculations for Mars Corp. Options (with approximations)Given:Stock Price (S) =…

Answered: BSM model. Mars Corp. common shares are…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

See similar textbooks

Similar questions

uppose an American put is trading for $16.50and an American call is trading for $15, whereboth options have identical terms. The underlying stock price is $99, and the exercise price is$100. The annual risk - free interest rate is 5 per cent, and the time to expiration for both optionsis one year. Assuming that the stock pays no dividends, identify the appropriate arbitrage trading strategy
You are given the following information about the stock of Company ABC: Share price $80 risk free rate of interest is 6%, time to expiration is 6 months, annualised standard deviationis 0.5 and exercise price is $85. Calculate the appropriate call value of the stock according to the Black-Scholes option pricing formula. (Show your workings in full) Calculate an appropriate put premium. (Show your workings in full)
The Moon company currently sells for 100 $. The annual stock price volatility is %10 and risk- free interest rate %8, the price of a call on a company’s stock with strike price 200 $ and time period 2 months. Find the stock option price with Black and Scholes Model. If option market value 320 $ what is the option strategy?
The Black-Scholes model is used to value call options on the stock of National Co. The following information was identified:· The share price is P43.· The option matures in 6 months· The risk-free rate is 2%.· Price of the option is at P43.What is the exponent of “e” for in computing the value of the call option using the Black-Scholes model?
The Black-Scholes model is used by Blue Co. to value call options of the stock of Gold Inc. The following information was determined: The share price is P40. The option matures in 1 year Risk-free rate is 2.50%. d1 = 0.70 %3D d2 = 0.30 %3D The variance of the rate of return of the share is (in decimal)
The current price of a non- dividend paying stock is $38.52. Use a two-step tree to value a European call option on the stock with a strike price $32.3 that expires in 12 months. The risk free rate is 9.9% per annum, and the volatility is 28.1 % . What is the option price?
Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?
If a particular stock does not pay dividends and is currently priced at $24 per share, what should be the price of a call option with a maturity of one year and a strike price of $24.5 if put options with the same features currently cost $2? Assume a risk free rate of 2%. (use 5 decimal places)
Shopify, Inc common stock currently sells for $1,229.91 per share, and the standard deviation of returns is 58.67%. A call option with a strike price of $1,100 is currently trading on the market. The option expires in 0.15 years, and the risk-free rate of return is 0.9%. Shopify does not pay a dividend. What is rho (ρ) for this call option assuming a continuous model such as the Black-Scholes model? A) 104.1327 B) 107.2895 C) 57.7772 D) 107.0002
If a particular stock does not pay dividends and is currently priced at $24 per share, what should be the price of a call option with a maturity of one year and a strike price of $24.5 if put options with the same features currently cost $2? Assume a risk-free rate of 2%. (use 5 decimal places)
Suppose that you have estimated the CAPM betas for the equity shares of the following two firms: Levi Strauss & Co. ( NYSE: LEVI): \beta ^ LEVI = 1.10 Tesla Inc. (Nasdaq: TSLA) : \beta ^ TSLA = 1.90 Assume that the risk - free rate is estimated at 4%, stable over the entire CAPM estimation period, and will remain in the foreseeable future. Answer questions a) and b) below. (Lecture notes p.12, pp.15-17) Suppose the expected return on S&P 500 index, a proxy for the market portfolio, is estimated at 17%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results): Suppose the market risk premium is estimated at 9%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results):
A stock is currently priced at $40. The risk-free rate of interest is 8% p.a. compounded continuously and an 18-month maturity forward contract on the stock is currently traded in the market at $38. You suspect an arbitrage opportunity exists. Which one of the following transactions do you need to undertake at time t = 0 to arbitrage based on the given information? Long the forward, short-sell the share and invest at risk-free rate Long the forward, borrow money and buy the share Short the forward, borrow money and buy the share Short the forward, short-sell the share and invest at risk-free rate

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS