FUND OF CORPORATE FINANCE LL W/ACCESS
11th Edition
ISBN: 9781260076752
Author: Ross
Publisher: MCG
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Chapter 24, Problem 4QP
Calculating Option Values [LO2] The price of Build A Fire Corp. stock will be either $62 or $86 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 4 percent.
a. Suppose the current price of the company’s stock is $70. What is the value of the call option if the exercise price is $65 per share?
b. Suppose the exercise price is $75 in part (a). What is the value of the call option now?
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Choose option a,b,c,d,e for the following:
Question 4 –
Chen and Co. expect its EBIT to be $100,000 every year forever. The firm can borrow at 11%. Chen currently has no debt, and its cost of equity is 18%. The tax rate is 31%. Chen will borrow $61,000 and use the proceeds to repurchase shares. What will the WACC be after recapitalization?
a. 15.17%
b. 17.15%
c. Data are insufficient to formulate a response.
d. 18%
e. 11.17%
H2.
Suppose that a stock price is currently 70 dollars, and it is known that at the end of each of the next two six-month periods, the price will be either 17 percent higher or 17 percent lower than at the beginning of the period. Find the value of an American put option on the stock that expires a year from now, and has a strike price of 76 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 11 percent.
Answer =
dollars.
Please show proper step by step calculation
13.
You are considering buying a Call Option on XYZ Company stock. XYZ Company stock is currently at $75 per share, and you predict that it will be $50 or $100 in one year. Call Option will support you for XYZ Company stock in buying one year for $65. Based on this information, answer the following questions:A. What is the value of the Call Option if the risk-free interest rate is 3%?B. Give your analysis of the relationship between buying an option with the risk of the company.
Chapter 24 Solutions
FUND OF CORPORATE FINANCE LL W/ACCESS
Ch. 24.1 - What is a call option? A put option?Ch. 24.1 - If you thought that a stock was going to drop...Ch. 24.2 - What is the value of a call option at expiration?Ch. 24.2 - What are the upper and lower bounds on the value...Ch. 24.2 - Prob. 24.2CCQCh. 24.3 - Prob. 24.3ACQCh. 24.3 - Prob. 24.3BCQCh. 24.3 - Prob. 24.3CCQCh. 24.4 - Prob. 24.4ACQCh. 24.4 - Prob. 24.4BCQ
Ch. 24.5 - Why do we say that the equity in a leveraged firm...Ch. 24.5 - All other things being the same, would the...Ch. 24.6 - Prob. 24.6ACQCh. 24.6 - Prob. 24.6BCQCh. 24.6 - Prob. 24.6CCQCh. 24.7 - Prob. 24.7ACQCh. 24.7 - Prob. 24.7BCQCh. 24.7 - Prob. 24.7CCQCh. 24.7 - Prob. 24.7DCQCh. 24 - Steve sold a put option when the option premium...Ch. 24 - Prob. 24.2CTFCh. 24 - Prob. 24.4CTFCh. 24 - Prob. 1CRCTCh. 24 - Prob. 2CRCTCh. 24 - Prob. 3CRCTCh. 24 - Prob. 4CRCTCh. 24 - Prob. 5CRCTCh. 24 - Options and Stock Risk [LO2] If the risk of a...Ch. 24 - Prob. 7CRCTCh. 24 - Prob. 8CRCTCh. 24 - Prob. 9CRCTCh. 24 - Prob. 10CRCTCh. 24 - Prob. 11CRCTCh. 24 - Prob. 12CRCTCh. 24 - Prob. 13CRCTCh. 24 - Prob. 14CRCTCh. 24 - Prob. 15CRCTCh. 24 - Calculating Option Values [LO2] T-bills currently...Ch. 24 - Understanding Option Quotes [LO1] Use the option...Ch. 24 - Calculating Payoffs [LO1] Use the option quote...Ch. 24 - Calculating Option Values [LO2] The price of Build...Ch. 24 - Calculating Option Values [LO2] The price of...Ch. 24 - Using the Pricing Equation [LO2] A one-year call...Ch. 24 - Equity as an Option [LO4] Rackin Pinion...Ch. 24 - Equity as an Option [LO4] Buckeye Industries has...Ch. 24 - Calculating Conversion Value [LO6] A 1,000 par...Ch. 24 - Convertible Bonds [LO6] The following facts apply...Ch. 24 - Calculating Values for Convertibles [LO6] You have...Ch. 24 - Calculating Warrant Values [LO6] A bond with 20...Ch. 24 - Prob. 13QPCh. 24 - Prob. 14QPCh. 24 - Prob. 15QPCh. 24 - Prob. 16QPCh. 24 - Intuition and Option Value [LO2] Suppose a share...Ch. 24 - Intuition and Convertibles [LO6] Which of the...Ch. 24 - Convertible Calculations [LO6] Starset, Inc., has...Ch. 24 - Abandonment Decisions [LO5] Allied Products, Inc.,...Ch. 24 - Pricing Convertibles [LO6] You have been hired to...Ch. 24 - Abandonment Decisions [LO5] Consider the following...Ch. 24 - SS Airs Convertible Bond SS Air is preparing its...Ch. 24 - Prob. 2MCh. 24 - Prob. 3MCh. 24 - Prob. 4MCh. 24 - Prob. 5M
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