– Option Payoffs at Expiration 20.3 – Put-Call Parity 20.4 – Factors Affecting Option Prices 20.5 – Exercising Options Early 20.6 – Options and Corporate Finance ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education 7 - 20 - 2 EMLYON Business School Learning Objectives 1. Define the following terms: call option‚ put option‚ exercise price‚ strike price‚ exercising the option‚ expiration date‚ American option‚ European option‚ in-the-money
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Option: you have the choice to buy something for a certain price but if the price is less than that price forget about the contract. The most you ever pay is the contract price. You have the possibility of doing better. Nothing to lose only gain since you locked in a certain price; seller of contract can only do worse. The person whom makes the contract charges a price to enter into the contract‚ the seller keeps this contract. This price is called the premium‚ options start life with a value‚ it
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8 percent. What is the current price of this bond? $1‚104.00 $978.41 $971.43 $1‚068.00 $1‚029.41 Question 3: 1 pts A 7.5 percent coupon bond is currently quoted at 89.3 and has a face value of $1‚000. What is the amount of each semi-annual coupon payment if you own three (3) of these bonds? $100.46 $200.93 $112.50 $75.00 $56.25 Question 4: 1 pts A European put option grants the holder the right to: buy the underlying asset at the exercise price on the expiration date. buy the
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Question: Discuss how an increase in the value of each of the determinants of the option price in the Black-Scholes option pricing model for European options is likely to change the price of a call option. A derivative is a financial instrument that has a value determined by the price of something else‚ such as options. The crucial idea behind the derivation was to hedge perfectly the option by buying and selling the underlying asset in just the right way and consequently "eliminate risk"
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Question 1 Consider an option on a non-dividend-paying stock when the stock price is $30‚ the exercise price is $29‚ the risk-free interest rate is 5% per annum‚ the volatility is 25% per annum‚ and the time to maturity is four months. a. What is the price of the option if it is a European call? b. What is the price of the option if it is an American call? c. What is the price of the option if it is a European put? d. Verify that put–call parity holds. Question 2 Assume
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000 Dividend payout ratio = Dividends paid/NI 47.37% Points Received: 10 of 10 Comments: Question 2. Question : (TCO F) The following data applies to Saunders Corporation’s convertible bonds. Maturity: 10 Stock price: $30.00 Par value: $1‚000.00 Conversion price: $35.00 Annual coupon: 5.00% Straight-debt yield: 8.00% What is the bond’s straight-debt value? (a) $684.78 (b) $720.82 (c) $758.76 (d) $798.70 (e) $838.63 Student Answer: Answer: d. $798.70 Straight debt value=(N=
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answer to the following questions: 3.1. What is the analogy Martin is trying to draw with options? What is the “stealth tier”? What is the unit of analysis? In what way is the stealth tier like a call option? What is the underlying asset price? Strike price? Volatility? 3.2. Why is Martin pushing real options valuation as an alternative to DCF analysis? In what ways might the “stealth” tier be incorporated into the DCF analysis and multiples analysis? 3.3. How good an analogy is the “stealth
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The definition of the three strikes law is as follows. The third conviction for a felony results in a mandatory and lengthy prison term as defined by the American justice. This research paper will exclusively be written to follow the guidelines of the Caliornia version of the “three strikes and you’re out law” The exact application of the three strikes laws vary considerably from state to state. Although over twenty-three states have a three strikes law and many others have similar laws‚ none are
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stock price will either go up by 18.91% or down by 15.9%.1 The riskless rate of interest is 4% per annum continuously compounded. A European-style call option is written on this stock with a $12 strike price and 8 months to expiry. a) b) c) d) Use the delta-hedging approach to price this call option. Use the risk-neutral valuation method to price this call option. Work recursively back through the Binomial tree‚ calculating the call option price at each node. Check that the option price at each
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Stock Option and Ethics Carol Berry ACC201 Principles of Financial Accounting Instructor: David Miller August 1‚ 2011 Stock Option and Ethics In today’s corporate world stock options makes up and is increasingly dominates CEO pay packages. CEO’s and top level executives are paid in a variety of different ways and stock options are just one of the ways that they get paid. CEO’s and executives have skills and responsibilities that allow directors of companies to pay these executives an extremely
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