Problem 8-1: Options A call option on the stock of Bedrock Boulders has a market price of $6. The stock sells for $30 a share, and the option has a strike price of $25 a share. What is the exercise value of the call option? $ What is the option's time value? $
Problem 8-2: Options The exercise price on one of Flanagan Company's options is $14, its exercise value is $21, and its time value is $5. What are the option's market value and the price of the stock? Option's market value $ Price of the stock $
Problem 8-3: Black-Scholes Model Assume that you have been given the following information on Purcell Industries: Current stock price = $14 Strike price of option = $14 Time to maturity of option = 4 months Risk-free rate = 8% Variance of stock return = 0.14 d1 = 0.231455 N(d1) = 0.591519 d2 = 0.01543 N(d2) = 0.506156 According to the Black-Scholes option pricing model, what is the option's value? Round your answer to the nearest cent. $
Problem 8-4: Put-Call Parity The current price of a stock is $33, and the annual risk-free rate is 3%. A call option with a strike price of $32 and 1 year until expiration has a current value of $5.20. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Round your answer to the nearest cent. $
Problem 8-6: Binomial Model The current price of a stock is $20. In 1 year, the price will be either $27 or $14. The annual risk-free rate is 4%. Find the price of a call option on the stock that has a strike price is of $23 and that expires in 1 year. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume 365-day year. Do not round your intermediate calculations. $
Problem 8-7 Binomial Model The current price of a stock is $16. In 6 months, the price will be either $18 or $12. The annual risk-free rate is 3%. Find the price of a call option on the stock that has an strike price of $13 and that expires in 6 months. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume a 365-day year. Do not round your intermediate calculations. $
Problem 8-8: Build a Model Except for charts and answers that must be written, only Excel formulas that use cell references or functions will be accepted for credit. Numeric answers in cells will not be accepted. You have been given the following information on a call option on the stock of Puckett Industries: P = $65 X = $70 t = 0.5 rRF = 4% s = 50.00% a. Using the Black-Scholes Option Pricing Model, what is the value of the call option? First, we will use formulas from the text to solve for d1 and d2. Hint: use the NORMSDIST function. (d1) = N(d1) = (d2) = N(d2) = Using the formula for option value and the values of N(d) from above, we can find the call option value. VC = b. Suppose there is a put option on Puckett's stock with exactly the same inputs as the call option. What is the value of the put? Put option using Black-Scholes modified formula = Put option using put-call parity =
Problem 8-2: Options The exercise price on one of Flanagan Company's options is $14, its exercise value is $21, and its time value is $5. What are the option's market value and the price of the stock? Option's market value $ Price of the stock $
Problem 8-3: Black-Scholes Model Assume that you have been given the following information on Purcell Industries: Current stock price = $14 Strike price of option = $14 Time to maturity of option = 4 months Risk-free rate = 8% Variance of stock return = 0.14 d1 = 0.231455 N(d1) = 0.591519 d2 = 0.01543 N(d2) = 0.506156 According to the Black-Scholes option pricing model, what is the option's value? Round your answer to the nearest cent. $
Problem 8-4: Put-Call Parity The current price of a stock is $33, and the annual risk-free rate is 3%. A call option with a strike price of $32 and 1 year until expiration has a current value of $5.20. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Round your answer to the nearest cent. $
Problem 8-6: Binomial Model The current price of a stock is $20. In 1 year, the price will be either $27 or $14. The annual risk-free rate is 4%. Find the price of a call option on the stock that has a strike price is of $23 and that expires in 1 year. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume 365-day year. Do not round your intermediate calculations. $
Problem 8-7 Binomial Model The current price of a stock is $16. In 6 months, the price will be either $18 or $12. The annual risk-free rate is 3%. Find the price of a call option on the stock that has an strike price of $13 and that expires in 6 months. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume a 365-day year. Do not round your intermediate calculations. $
Problem 8-8: Build a Model Except for charts and answers that must be written, only Excel formulas that use cell references or functions will be accepted for credit. Numeric answers in cells will not be accepted. You have been given the following information on a call option on the stock of Puckett Industries: P = $65 X = $70 t = 0.5 rRF = 4% s = 50.00% a. Using the Black-Scholes Option Pricing Model, what is the value of the call option? First, we will use formulas from the text to solve for d1 and d2. Hint: use the NORMSDIST function. (d1) = N(d1) = (d2) = N(d2) = Using the formula for option value and the values of N(d) from above, we can find the call option value. VC = b. Suppose there is a put option on Puckett's stock with exactly the same inputs as the call option. What is the value of the put? Put option using Black-Scholes modified formula = Put option using put-call parity =
