The common shares of Twitter, Incorporated (TWTR) recently traded on the NYSE for $67 per share. You have employee stock optionsto purchase 1,000 TWTR shares for $72 per share. The options expire in three years. Assume that the annualized volatility of TWTRstock is 57 percent and that the interest rate is 2.6 percent. (Assume the options are European options that may only be exercised atthe maturity date.)a. Is this option a call or a put?O CallO Putb. Using an option pricing calculator such as the one at erieri.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 optionsc. 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 optionsd. What is the estimated value of the options if their maturity is three years, but TWTR's volatility is 32 percent?Note: Round your intermediate calculations to 2 decimal places and final answer to nearest whole dollar.Value of the options

Stock price = $67Strike price = $72Interest rate = 2.6%Volatility = 57%

Answered: The common shares of Twitter,…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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