Cheryl Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Cheryl 40,000 at-the-money European call options on the company's stock, which is currently trading at $55 per share. The stock pays no dividends. The options will expire in five years and the standard deviation of the returns on the stock is 56 percent. Treasury bills that mature in five years currently yield a continuously compounded interest rate of 7.4 percent. Use the Black-Scholes model to calculate the value of the stock options. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Value of option grant $ 30.83

Cheryl Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Cheryl 40,000 at-the-money European call options on the company's stock, which is currently trading at $55 per share. The stock pays no dividends. The options will expire in five years and the standard deviation of the returns on the stock is 56 percent. Treasury bills that mature in five years currently yield a continuously compounded interest rate of 7.4 percent. Use the Black-Scholes model to calculate the value of the stock options. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Value of option grant $ 30.83

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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Question 9 In January 2023 Apple shares are priced at $200 a share. You believe that they are considerably overvalued and are worth only $120 a share. June 2023 put options on a strike price of $210 a share is currently valued at $18 per share. Each put contract is based on 100 shares. (iii) If we arrive at expiry in June and you are proved correct with Apple shares selling for $120, what is your total net dollar profit (+) or loss (-) on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What will be the total cash settlement by the option writer if the Apple share price expires at $120 per share in June 2023? (v) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and Apple shares are selling for $250?
k nces The common shares of Twitter, Incorporated (TWTR) recently traded on the NYSE for $83 per share. You have employee stock options to purchase 1,000 TWTR shares for $88 per share. The options expire in three years. Assume that the annualized volatility of TWTR stock is 73 percent and that the interest rate is 3.4 percent. (Assume the options are European options that may only be exercised at the maturity date.) a. Is this option a call or a put? Call O Put b. 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 options $ 83,000 c. 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 options d. What is the estimated value of the…
Question 6 In January 2024, Amazon shares were priced at $80 a share. You believe that they are overvalued and are worth only $30 a share. June 2024 put options on a strike price of $60 a share are currently valued at $5. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Amazon shares selling for $30, what is your net dollar profit on a single put options contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and Amazon shares are selling for $100?
Question 6 In January 2024, Amazon shares are priced at $80 a share. You believe that theyare overvalued and are worth only $30 a share. June 2024 put options on a strike priceof $60 a share are currently valued at $5. Each put contract is based on 100 shares.(i) What is the intrinsic value of the put option per share? (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Amazon shares sellingfor $30, what is your net dollar profit on a single put options contract in dollars bearing inmind the put option is based on a contract of 100 shares?(iv) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and Amazon shares are selling for $100?
Problem 21-39 XYZ Corp. will pay a $2 per share dividend in two months. Its stock price currently is $86 per share. A European call option on XYZ has an exercise price of $78 and 3-month time to expiration. The risk-free interest rate is 0.8% per month, and the stock's volatility (standard deviation) -22% per month. Find the Black-Scholes value of the American call option. (Hint: Try defining one "period" as a month, rather than as a year, and think about the net-of-dividend value of each share.) (Round your answer to 2 decimal places.) Black-Scholes value of the option 7.12
Question 9 In January 2023 Apple shares are priced at $200 a share. You believe that they are considerably overvalued and are worth only $120 a share. June 2023 put options on a strike price of $210 a share is currently valued at $18 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? Explain your reasoning. (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Apple shares selling for $120, what is your total net dollar profit (+) or loss (-) on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What will be the total cash settlement by the option writer if the Apple share price expires at $120 per share in June 2023? (v) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and…
Problem 18-9 MF Corp. has an ROE of 14% and a plowback ratio of 75%. The market capitalization rate is 13%. a. If the coming year's earnings are expected to be $2.30 per share, at what price will the stock sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price b. What price do you expect MF shares to sell for in three years? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price
21 Chapter Tis Quiz: pts om (Common stock valuation) Assume the following: 21 I Chapter • the investor's required rate of returm is 16 percent, • the expected level of earnings at the end of this year (E,) is $9, • the retention ratio is 60 percent, • the return on equity (ROE) is 19 percent (that is, it can earn 19 percent on reinvested.earnings), and • similar shares of stock sell at multiples of 8.696 times earnings per share. om 21 Chapter om 21 I Chapter Questions: om a. Determine the expected growth rate for dividends. . b. Determine the price earnings ratio (PIE, ). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? 21 Chapter om I Chapter a. What is the expected growth rate for dividends? 21 om % (Round to two decimal places.) 21 Chapter b. What is the price earnings ratio (PIE,)? om (Round to three decimal places.) I Chapter 1 21 om c. What is the stock price using the P/E ratio valuation method?…
Common stock versus warrant investment Personal Finance Problem Tom Baldwin can invest $4,000 in the common stock or the warrants of Lexington Life Insurance. The common stock is currently selling for $50 per share. Its warrants, which provide for the purchase of 3 shares of common stock at $48 per share, are currently selling for $12. The stock is expected to rise to a market price of $53 within the next year, so the expected theoretical value of a warrant over the next year is $15. The expiration date of the warrant is one year from the present. a. If Mr. Baldwin purchases the stock, holds it for one year, and then sells it for $53, what is his total gain? (Ignore brokerage fees and taxes.) b. If Mr. Baldwin purchases the warrants and converts them to common stock in 1 year, what is his total gain if the market price of common shares is actually $53? (Ignore brokerage fees and taxes.) c. Repeat parts a and b, assuming that the market price of the stock in one year is $49. d. Discuss…
MF1 Pepsi stock price: $178 Expiration date of options: December 9, 2022 (i.e., 1 month from November 11th) Exercise (or strike) price: $180 Call option value: $2.66 Put option value: $5.35 U.S. Treasury annual yield: 3.71% Question 2 Suppose you currently own Pepsi stock. You wish to do a “covered call” on Pepsi stock to protect against adverse stock price fluctuations. You use the option data shown above. Sketch a profit graph for this covered call. Briefly discuss the advantages of a covered call over just holding Pepsi stock. No calculations necessary, just discuss
Problem 14-02 What should be the prices of the following preferred stocks if comparable securities yield 5 percent? Use Appendix B and Appendix D to answer the questions. Round your answers to the nearest cent. MN, Inc., $9 preferred ($120 par) $ CH, Inc., $9 preferred ($120 par) with mandatory retirement after 6 years
Problem 9-17 Assume that the risk-free rate of interest is 5% and the expected rate of return on the market is 17%. A share of stock sells for $64 today. It will pay a dividend of $2 per share at the end of the year. Its beta is 1.0. What do investors expect the stock to sell for at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Expected stock price

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