Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
PUT-CALL PARITY A put option written on the stock of Ellis Enterprises (EE) has an exercise price of $30 and 9 months remaining until expiration. The risk-free rate is 5%. A call option written on EE has the same exercise price and expiration date as the put option. EE’s stock price is $45. If the call option has a price of $18.99, what is the price (i.e., value) of the put option?
To determine: The price of put option.
Introduction:
Option is a contract to purchase a financial asset from one party and sell it to another party on an agreed price for a future date. There are two types of options, which are as follows:
- An option that buys an asset called call option
- An option that sells an asset called put option
E Company has a stock on the put option with an exercise price of $30 and there is 9 months period for expiration. The risk-free rate is 5 percent. Even a call option was written on the Company’s stock with the similar exercise price and expiration period as the put option. The stock price of the E Company is $45 and the call option price is $18.99.
The formula to compute the price of put option is as follows:
Where,
V refers to the value of option
P refers to the current price of stock
X refers to the exercise price of option
rRF refers to the risk-free rate
t refers to the number of periods
Compute the price of put option:
Note: The value of “e” is 2.718281828.
Chapter 18 Solutions
Additional Business Solutions
Find more solutions based on key concepts
Show solutions addDiscuss the following statement: A bonds yield to maturity is the bonds promised rate of return, which equals i...
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
DPS CALCULATION Weston Corporation just paid a dividend of 1.00 a share (i.e., D0 = 1.00). The dividend is expe...
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Compare the four forms of competition.
Foundations of Business (MindTap Course List)
(Supply) What is the law of supply? Give an example of how you have observed the law of supply at work. What is...
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
The article Study on the Life Distribution of Microdrills (J. of Engr. Manufacture, 2002: 301-305) reported the...
Probability and Statistics for Engineering and the Sciences
Retail method; gross profit method Selected data on inventory, purchases, and sales for Celebrity Tan Co. and R...
Corporate Financial Accounting
There are several organizations that provide Internet assurance services. Although WebTrust was created by CPAs...
Accounting Information Systems
Assume that Audio Outfitter Inc. in Discussion Question 9 experienced an abnormal inventory shrinkage of 98,600...
Financial & Managerial Accounting
Should an economic model describe reality exactly?
Principles of Microeconomics (MindTap Course List)
Suppose that a fall in consumer spending causes a recession. a. Illustrate the immediate change in the economy ...
Principles of Macroeconomics (MindTap Course List)
Which one of the following best describes the allowance for doubtful accounts? a. Cash flow account b. Income s...
Cornerstones of Financial Accounting
Creating and Polishing Your Resume. YOUR TASK. Using the data you developed in Activity 13.4, write your resume...
Essentials of Business Communication (MindTap Course List)
You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is ...
Brief Principles of Macroeconomics (MindTap Course List)
A Bloomberg Businessweek North American subscriber study collected data from a sample of 2861 subscribers. Fift...
STATISTICS F/BUSINESS+ECONOMICS-TEXT
What does the invisible hand of the marketplace do?
Principles of Economics (MindTap Course List)
Bank reconciliation and entries The cash account for Collegiate Sports Co. on November 1, 20Y9, indicated a bal...
Financial And Managerial Accounting
Sara MacIntosh recently joined MicroPhone, a large telecommunications company, to take Over the implementation ...
Management, Loose-Leaf Version
What are the four types of control activities?
College Accounting, Chapters 1-27
The first principle of economics discussed in Chapter 1 is that people face trade-offs. Use a production possib...
Essentials of Economics (MindTap Course List)
Warwicks Co., a womens clothing store, purchased 75,000 of merchandise from a supplier on account, terms FOB de...
Financial Accounting
Contrast how marketing plans differ at various levels in an organization.
Contemporary Marketing
Notes Receivable On January 1, 2019, Lisa Company sold machinery with a book value of 118,000 to Mark Company. ...
Intermediate Accounting: Reporting And Analysis
The estimates of losses annually resulting from computer fraud vary widely. Why do you think obtaining a good e...
Accounting Information Systems
What is a mixed account? A contra account? Give an example of each.
College Accounting (Book Only): A Career Approach
Calculation of Work in Process and Cost of Goods Sold with Multiple Jobs Ensign Landscape Design designs landsc...
Managerial Accounting: The Cornerstone of Business Decision-Making
Describe the arguments for and against society responsibility
MKTG 12:STUDENT ED.-TEXT
REGRESSION AND RECEIVABLES Edwards Industries has 320 million in sales. The company expects that its sales will...
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
MVA Henderson Industries has 500 million of common equity on its balance sheet; its stock price is 60 per share...
Fundamentals of Financial Management (MindTap Course List)
Pew Research Center is a nonpartisan polling organization that provides information about issues, attitudes, an...
Statistics for Business & Economics, Revised (MindTap Course List)
Discount amortization Using the bond from Practice Exercise 12-3A, journalize the first merest payment and the ...
Financial & Managerial Accounting
Showcase Co., a furniture wholesaler, sells merchandise to Balboa Co. on account, 254,500, terms n/30. The cost...
Financial Accounting
An alternative version of Greshams law is that Bad money drives out good money. Why is it true that, in choosin...
Exploring Economics
The entry to establish the Change Fund includes which of the following? a. Debit to Cash b. Debit to Change Fun...
College Accounting (Book Only): A Career Approach
Classify costs Seymour Clothing Co. manufactures a variety of clothing types for distribution to several major ...
Accounting (Text Only)
Describe the four layers of controls for restricting logical access to stored programs, data, and documentation...
Pkg Acc Infor Systems MS VISIO CD
Consider public policy aimed at smoking. a. Studies indicate that the price elasticity of demand for cigarettes...
Principles of Macroeconomics (MindTap Course List)
FINANCIAL STATEMENTS Page 206 shows a work sheet for Megaffins Repairs. No additional investments were made by ...
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Determining cost of goods sold For a recent year. Best Buy reported sales of 42,410 million. Its gross profit w...
Corporate Financial Accounting
What is the state of the labor market when the economy is in a recessionary gap? In an inflationary gap?
Macroeconomics
If reserves decrease by 3 million and the required reserve ratio is 8 percent, what is the change in the money ...
Economics (MindTap Course List)
Purchasing Ethics Scenario 1 Bryan Janz was just arriving back from lunch when his office phone rang. It was hi...
Purchasing and Supply Chain Management
You must make one of two decisions, each with possible gains and possible losses. One of these decisions is muc...
Practical Management Science
What is the difference between diseconomies of scale and the law of diminishing marginal returns?
Microeconomics
Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the activities pe...
Cornerstones of Cost Management (Cornerstones Series)
When is time spent by employees in attending lectures and meetings for training purposes not counted as working...
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Based on the assumptions of Question 3, explain verbally the impact of an increase of 4 trillion in aggregate d...
Economics For Today
Using Financial statements A company’s stakeholders often differ in their financial statement focus. For exampl...
Survey of Accounting (Accounting I)
