Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 22, Problem 20QP
Black-Scholes A stock is currently priced at $35. A call option with an expiration of one year has an exercise price of $50. The risk-free rate is 7 percent per year, compounded continuously, and the standard deviation of the stock’s return is infinitely large. What is the price of the call option?
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Chapter 22 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 22 - Options What is a call option? A put option? Under...Ch. 22 - Options Complete the following sentence for each...Ch. 22 - American and European Options What is the...Ch. 22 - Intrinsic Value What is the intrinsic value of a...Ch. 22 - Option Pricing You notice that shares of stock in...Ch. 22 - Options and Stock Risk If the risk of a stock...Ch. 22 - Option Risk True or false: The unsystematic risk...Ch. 22 - Prob. 8CQCh. 22 - Option Price and Interest Rates Suppose the...Ch. 22 - Contingent Liabilities When you take out an...
Ch. 22 - Options and Expiration Dates What is the impact of...Ch. 22 - Options and Stock Price Volatility What is the...Ch. 22 - Insurance as an Option An insurance policy is...Ch. 22 - Equity as a Call Option It is said that the equity...Ch. 22 - Prob. 15CQCh. 22 - Put Call Parity You find a put and a call with the...Ch. 22 - Put- Call Parity A put and a call have the same...Ch. 22 - Put- Call Parity One thing put-call parity tells...Ch. 22 - Two-State Option Pricing Model T-bills currently...Ch. 22 - Understanding Option Quotes Use the option quote...Ch. 22 - Calculating Payoffs Use the option quote...Ch. 22 - Two-State Option Pricing Model The price of Ervin...Ch. 22 - Two-State Option Pricing Model The price of Tara,...Ch. 22 - Put-Call Parity A stock is currently selling for...Ch. 22 - Put-Call Parity A put option that expires in six...Ch. 22 - Put-Call Parity A put option and a call option...Ch. 22 - Pot-Call Parity A put option and a call option...Ch. 22 - Black-Scholes What are the prices of a call option...Ch. 22 - Black-Scholes What are the prices of a call option...Ch. 22 - Delta What are the deltas of a call option and a...Ch. 22 - Prob. 13QPCh. 22 - Prob. 14QPCh. 22 - Time Value of Options You are given the following...Ch. 22 - Prob. 16QPCh. 22 - Prob. 17QPCh. 22 - Prob. 18QPCh. 22 - Black-Scholes A call option has an exercise price...Ch. 22 - Black-Scholes A stock is currently priced at 35. A...Ch. 22 - Equity as an Option Sunburn Sunscreen has a zero...Ch. 22 - Equity as an Option and NPV Suppose the firm in...Ch. 22 - Equity as an Option Frostbite Thermalwear has a...Ch. 22 - Mergers and Equity as an Option Suppose Sunburn...Ch. 22 - Equity as an Option and NPV A company has a single...Ch. 22 - Two-State Option Pricing Model Ken is interested...Ch. 22 - Two-State Option Pricing Model Rob wishes to buy a...Ch. 22 - Two-State Option Pricing Model Maverick...Ch. 22 - Prob. 29QPCh. 22 - Prob. 30QPCh. 22 - Prob. 31QPCh. 22 - Two-State Option Pricing and Corporate Valuation...Ch. 22 - Black-Scholes and Dividends In addition to the...Ch. 22 - Prob. 34QPCh. 22 - Prob. 35QPCh. 22 - Prob. 36QPCh. 22 - Prob. 37QPCh. 22 - Prob. 38QPCh. 22 - Prob. 1MCCh. 22 - Prob. 2MCCh. 22 - Prob. 3MCCh. 22 - Prob. 4MCCh. 22 - Prob. 5MC
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- The price of a share follows the geometric Brownian motion with parameters µ = 0.2 and σ = 0.18. Presently, the share’s price is £38. Consider a call option having one year until its expiration time and having a strike price of £40. The continuously compounded interest rate is 5%. (a) What is the risk-neutral price C of this call option?arrow_forwardA call option has X=$52 and expire in 360 days (suppose we have 360 days in one year). The risk-free rate is 4%. The call is priced at $11. A put option has X-$52 and is priced at $1. The underlying asset is priced at S0=$43. Suppose in our investments, we could involve one call, one put, one bond, and on stock. How much arbitrage profit could we possibly obtain?arrow_forwardConsider the following information on a particular stock: Stock price = $89 Exercise price = $85 Risk-free rate = 3% per year, compounded continuously Maturity = 8 months Standard deviation = 59% per year 1. What is the delta of a call option? 2. What is the delta of a put option?arrow_forward
- Consider a stock with a current price of $15 that will be worth either $10 or $25 1 year from now. Assume rf = 0% (annual compounding). You have invented a new derivative security called an "inverse", whose payoff in 1 year is 100 divided by the stock price, i.e., payoff =100/S1 . If the beta of the stock is 1.2, what is the beta of this new derivative?arrow_forwardA stock of 9 is currently priced at $38. A call option with an expiration of one year has an exercise price of $40. The risk-free rate is 4.2 percent per year, compounded continuously, and the standard deviation of the stock's return is infinitely large. What is the price of the call option?arrow_forwardGive typing answer with explanation and conclusion A call option has a strike price of $11, and a time to expiration of 0.8 in years. If the stock is trading for $20, N(d1) = 0.5, N(d2) = 0.12, and the risk free rate is 5.40%, what is the value of the call option?arrow_forward
- You are given the following information concerning options on a particular stock: Stock price= Exercise price= Risk-free rate= Maturity= Standard deviation= $83 Intrinsic value=$ $80 6% per year, compounded continuously 6 months 47% per year (a)What is the intrinsic value of the call option? (Please keep two digits after the decimal point.) (b)What is the time premium of the call option? (Please keep two digits after the decimal point.) Time premium of the call option=$arrow_forwardSuppose that a stock price is currently 35 dollars, and it is known that four months from now, the price will be either 51 dollars or 29 dollars. Find the value of a European call option on the stock that expires four months from now, and has a strike price of 39 dollars. Assume that no arbitrage opportunities exist and a risk-free interest rate of 10 percent.Answer =dollars.arrow_forwardIs there an arbitrage opportunity in this market? Explain.arrow_forward
- Suppose that a stock price is currently 49 dollars, and it is known that one month from now, the price will be either 8 percent higher or 8 percent lower. Find the value of an American call option on the stock that expires one month from now, and has a strike price of 51 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 7 percent.arrow_forwardi need the answer quicklyarrow_forwardSuppose that a stock price is currently 51 dollars, and it is known that one month from now, the price will be either 6 percent higher or 6 percent lower. Find the value of an American call option on the stock that expires one month from now, and has a strike price of 49 dollars. Assume that no arbitrage opportunities exist, and a risk free interest rate of 10 percentarrow_forward
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