EBK FUNDAMENTALS OF CORPORATE FINANCE
9th Edition
ISBN: 9781260049237
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 23, Problem 22QP
a)
Summary Introduction
To compute: The percentage return of call option with a strike price of $750 and if the price of stock increases.
b)
Summary Introduction
To compute: The percentage return when the price of the stock decreases.
c)
Summary Introduction
To discuss: The riskier one option or stock.
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Students have asked these similar questions
Consider a put option on a stock that currently sells for £100, but may rise to £120 or
fall to £80 after 1 year. The risk free rate of return is 10%, and the exercise price is £90.
(a) Calculate the value of the put option using the risk-neutral valuation relationship
(RNVR). Explain the reasoning behind your calculations.
2) Below are call and put option prices for Exxon, expiring on November 17, 2017. The prices are from
September 8, 2017. The price of the stock on September was $78.81. Given all this, what annual interest
rate is implies by these prices?
Some hints:
Use put-call parity, and the exponential formula for the price of money.
There will be several implied interest rates, one for each strike price.
You have to take a natural logarithm to calculate the answers.
The natural log of exp(A)=A.
Calculate interest rates to five digits
Strike
Price
75
77.5
80
82.50
85
Put
Call
Price Price
4.61
2.69 1.64
1.30
0.94
0.51
2.90
4.84
0.16 8.90
Consider a put option on a stock that curretly sclls for £100, but may rise to £120 or
fall to £80 after 1 year. The risk free rate of return is 10%, and the exercise price is £90.
(a) Calculate the value of the put option using the risk-neutral valuation relationship
(RNVR). Explain the reasoning behind your calculations.
(b) Calculate the value of the put option by using first principles (No Arbitrage prin-
ciples). Explain the reasoning behind your calculations.
(c) What is the price of a call option on the same stock with the same exercise price
and the same expiration date? Explain the reasoning behind your calculations.
Chapter 23 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE
Ch. 23 - Prob. 1QPCh. 23 - Prob. 2QPCh. 23 - Prob. 3QPCh. 23 - Prob. 4QPCh. 23 - Prob. 5QPCh. 23 - Prob. 6QPCh. 23 - Prob. 7QPCh. 23 - Prob. 8QPCh. 23 - Prob. 9QPCh. 23 - Prob. 10QP
Ch. 23 - Prob. 11QPCh. 23 - Prob. 12QPCh. 23 - Prob. 13QPCh. 23 - Prob. 14QPCh. 23 - Prob. 15QPCh. 23 - Prob. 16QPCh. 23 - Prob. 17QPCh. 23 - Prob. 18QPCh. 23 - Prob. 22QPCh. 23 - Prob. 23QPCh. 23 - Prob. 24QPCh. 23 - Prob. 25QPCh. 23 - Prob. 26QPCh. 23 - Prob. 27QPCh. 23 - Prob. 28QPCh. 23 - Prob. 29QPCh. 23 - Prob. 30QPCh. 23 - Prob. 31QP
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
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