Option values have two essential components. What are these two components name and explain them?

Q: In an option the "strike" price and "exercise" price have two completely different meanings.

A: The answer and the explanation is provided below:

Q: What is the IRR of this offer?

A: Capital budgeting methods are the used for finding the profitability of capital projects. It is a…

Q: Define time value of an option

A: Answer: In addition to its intrinsic value, the time value of an option is the part of the premium…

Q: Define the Base Case and the Proposed Alternatives?

A: The base case is the output expected from the basic assumption made by the project team. The basic…

Q: What is the difference between a Put option and a Call option? Explain. Provide examples.

A: Option is a derivative instrument which gives a choice to its buyer to buy or sell the underlying…

Q: Briefly explain Option Distinguish between Call option and a put option

A: Options are financial instruments whose value is based on underlying securities. An option contract…

Q: Describe the Sensitivity Analysis for Mutually Exclusive Alternatives?

A: Sensitivity analysis portrays how various values of an independent factor under a given arrangement…

Q: Describe the five variables (Assets price, Strick price or Exercise Price, Risk- Free- Rate, Time to…

A: Five Variable of Black-Scholes Merton Formula   Assets Price Strike Price or Exercise Price Risk…

Q: What is a financial option? What is the singlemost important characteristic of an option?

A: Answer: A type of financial security that derives its value from the value of a particular…

Q: What is option?

A: Options are the derivatives contract that gives investor discretion to sell or buy the assets like…

Q: What is in-the-money option?

A: Option is a financial instrument that gives the right to buy/sell an underlying in future date at a…

Q: What is the definition of "FMS option"?

A: Stock Option: An investor who purchases a stock option has the right, but not the responsibility, to…

Q: 1. What are the differences between call and put options?

A:

Q: What is the FMS option?

A: FMS: Flexible manufacturing system

Q: What are the five variables that affect the value of an option, and how do changes in each of these…

A: Option price refers to the price at which buyers purchase the stock or have the right to buy or sell…

Q: Which alternative should be selected? Use a challenger-defender rate of return analysis.

A: Given,  Particulars Projects A($) B($) C($) D($) Initial investment 8500 18500 26500 30000…

Q: Explain the call-put parity relation and how it is justified. Black-Scholes-Merton formula uses…

A: A contract for an option grants the buyer the right to sell or buy the assets or securities at the…

Q: Briefly describe what an investment timing option is and why such options are valuable.

A: There are various time arises where the company need to choose between  in order to make the…

Q: Is the accept-or-reject decision rule the same as in the simple -investment case? Explain how?

A: Yes, accept or reject decision rule is the same as in the simple investment because accept or reject…

Q: Explain the following terms, In-the money option and At-the-money option.

A:

Q: Explain put option

A: Introduction: This question is related to the concept of financial derivatives. Derivative…

Q: Define Black-Scholes option pricing model

A: Assumptions of Black-Scholes option pricing models: There is no dividend during the lifetime of the…

Q: CDOs

A: Collateralized Debt Obligations or CDO's refer to asset backed securities which would include both…

Q: Give a detail example of option to expand

A: In order to expand the business operations and to invest in a particular project in the future with…

Q: What impact does each of the followingparameters have on the value of a call option?(4) Risk-free…

A: An agreement where the holder has a right to purchase or sell the shares at a specific price at a…

Q: Define each of the following terms:a. Real option; managerial option; strategic option; embedded…

A: Real option: A real option is a desirable economic privilege or to give up a selection, often in…

Q: Identify some different types of real options and differentiateamong them.

A: Real Options are rights which enable  a manager to take a decision regarding business operations…

Q: What are the Black-Scholes Options Pricing Model's underlying assumptions?

A: The Black-Scholes Options Pricing Model can be defined as the pricing model used to ascertain the…

Q: What is a real option?

A: Real option It may be a selection made open to a firm's supervisors approximately the commerce…

Q: Which are two types of financially sound RPI strategies?

A: RPI refers to responsible property investing.

Q: Options have a unique set of terminology. Definethe following terms:(3) Strike price or exercise…

A: Option: An option is a special type of contract which gives its holder the right but not obligation…

Q: What is the buy option?

A: A buy option involves two types which are : Buy call option Buy put option

Q: a. Are there Nash equilibria? If so, determine how many and state which strategies.

A: Yes, there are Nash equilibrium.

Q: mutually exclusive alternatives, determine the value "X" for the two alternatives to be equally…

A: Mutually Exclusive projects are projects that can not occur together. That is, happening of one…

Q: What do you think about vanilla options as hedging market risk vehicle? In your answer please…

A: The vanilla options are nothing but buying call and put options and these give opportunity to buy or…

Q: What are the six determinants of call option value? Would an increase in each of those create a more…

A: the call option is the type of flexible contract. In this type of contract, the buyer gets the right…

Q: Options have a unique set of terminology. Define the following terms: (6) Option price

A: Options are referred as the derivative based financial instruments which indicates the value of an…