Cheryl Levin is the chief executive officer of Mountainbrook Trading Company. Theboard of directors has just granted Cheryl 10,000 at-the-money European call options onthe company's stock, which is currently trading at $125 per share. The stock pays nodividends. The options will expire in five years and the standard deviation of the returnson the stock is 56 percent. Treasury bills that mature in five years currently yield acontinuously compounded interest rate of 5 percent. Use the Black-Scholes model tocalculate the value of the stock options. (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)Value of option grant

Step 1:Formula to calculate Value of options using black-scholes is as follows: Value of call…

Answered: Cheryl Levin is the chief executive…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

Mark Motel's debt has a face value of $40 million, a coupon rate of 14% (paid semiannually), and expires in 12 years (at t = 12 . The current annual yield-to-maturity (stated) for all bonds of the company is 15%. Mark wishes to conserve cash for the next few years. To do this, Mark decides to issue new equity and use the proceeds to purchase the existing debt at the market price. The current stock price of Mark is $60 and there are 2 million shares outstanding. 1. How many shares should Mark issue to purchase the existing debt? Assume the decision to purchase the bond does not change the stock price. Instead, the company decides to issue a zero-coupon bond that matures at year 5, and use the proceeds to purchase the existing debt at the market price. 2. What is the face value of the zero-coupon bond that Mark needs to issue?
cullumber, inc has a bond issue maturing in seven years that is paying a coupon rate of 7.5 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. if it can refinance at 6 percent, how much will cullumber pay to buy back its current outstanding bonds? Assume face value is $1000.
cullumber, inc has a bond issue maturing in seven years that is paying a coupon rate of 9.0 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. if it can refinance at 7.5 percent, how much will cullumber pay to buy back its current outstanding bonds?
Thatcher Corporation’s bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8 percent coupon rate, paid semiannually. The price of the bond is $1,100. What is the firm’s cost (percentage rate) of borrowing money under these market conditions?
The current price of a non-dividend paying stock is $119. Over the next year, it is expected to go up or down by 13% or 11%, respectively. The risk-free rate is 5% per year with continuous compounding. A market-maker of an important investment bank just sold 100 at-the-money European call options (i.e. one contract) expiring in one year to an important client. How many shares of the stock does she need to buy in order to hedge her exposure? Express your answer with two decimals.
KroBank issues a zero coupon bond and it has to pay the face value of the bond of $100 M due in exactly five years. Assuming interest rates are currently at 8% p.a., which of the following is the best investment option for the bank to ensure it has enough funds to meet the liability in five years: Invest $100M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 7 years (duration is 5.62 years), sell the bonds in year 5. Invest $100M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 6 years (duration is 4.99 years), sell the bonds in year 5. Invest $100 M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 5 years (duration is 4.31 years). Invest $100 M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 8 years (duration is 6.21 years), sell the bonds in year 5.
An investor pays $30,000 for a convertible bond (one that can be converted into shares of corporate common stock). The bond conversion rate is 100 shares of stock anytime within the next five years. What will the stock price have to be in year 3 in order for the investor to make 10% per year on the investment? Assume the bond interest rate is 4% per year payable annually.
Poulter Corporation will pay a dividend of $4.40 per share next year. The company pledges to increase its dividend by 5.75 percent per year, indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company's stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current stock price
The common shares of Twitter, Incorporated (TWTR) recently traded on the NYSE for $75 per share. You have employee stock options to purchase 1,000 TWTR shares for $80 per share. The options expire in three years. Assume that the annualized volatility of TWTR stock is 65 percent and that the Interest rate is 3 percent (Assume the options are European options that may only be exercised at the maturity date.) a. Is this option a call or a put? O Call O Put b. Using an option pricing calculator such as the one at erleri.com/blackscholes, estimate the value of your TWTR options. Note: Round your Intermediate calculations to 2 decimal places and final answer to nearest whole dollar. Value of your TWTR options c. What is the estimated value of the options if their maturity is six months Instead of three years? Note: Round your Intermediate calculations to 2 decimal places and final answer to nearest whole dollar. Value of the options d. What is the estimated value of the options if their…
NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $0.61 a share. The following dividends will be $0.66, $0.81, and St a share annually for the following three years, respectively. After that, dividends are projected to increase by 40 percent per year How much are you willing to pay today to buy one share of this stock if your desired rate of retum is s percent? O $12.01 O $2.27 $11.54 O $9.08 O $12.15
A non-dividend-paying stock is currently selling for $50, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six-month forward contract on the stock. a. What is the forward price？ (sample answer: $25.45) b. What is the initial value of the forward contract? (sample answer: $25.45) c. Three months later, the price of the stock is $48 and the risk-free rate is still 8% per annum. What is the forward price now? (sample answer: $25.45) What is the value of the short position in the forward contract? (sample answer: $25.45 or -$25.45
A trader has purchased 200 shares of a stock at £100 per share on margin. The terms of the loan obtained from the trader's broker are as follows. The initial margin is 50%, the interest rate on the loan is 8%, and the trader has agreed to maintain a margin of 20%. How low the price can drop in a year before the trader receives a margin call? F

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS