INTERMEDIATE FINANCIAL MANAGEMENT
14th Edition
ISBN: 9780357516669
Author: Brigham
Publisher: CENGAGE L
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Textbook Question
Chapter 5, Problem 5MC
In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM).
- (1) What assumptions underlie the OPM?
- (2) Write out the three equations that constitute the model.
- (3) According to the OPM, what is the value of a call option with the following characteristics?
Stock price = $27.00
Strike price = $25.00
Time to expiration = 6 months = 0.5 years
Risk-free
Stock return standard deviation = 0.49
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II. Suppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation, = 0.5
a. What is correct of the call options using Black-Scholes model? b. Compute the put options price using Black-Scholes model?
c. Outline the appropriate arbitrage strategy and graphically prove that the arbitrage is riskless.Note: Use the call and put options prices you have computed in the previous question (a) and (b) above.b. Name the options/stock strategy used to proof the put-call parity. c. What would be the extent of your profit in (a) depend on?
Which of the following is not a determinant of the value of a call option in the Black-Scholes model?
A. The interest rate.
B. The exercise price of the stock.
C. The price of the underlying stock.
D. The beta of the underlying stock.
Need typed answer only.Please give answer within 45 minutes
A call option with X = $50 on a stock currently priced at S = $55 is selling for $10. Using a volatility estimate of σ = .30, you find that N(d1 ) = .6 and N(d2 ) = .5. The risk-free interest rate is zero. Is the implied volatility based on the option price more or less than .30? Explain.
Chapter 5 Solutions
INTERMEDIATE FINANCIAL MANAGEMENT
Ch. 5 - Define each of the following terms:
Option; call...Ch. 5 - Prob. 2QCh. 5 - Prob. 3QCh. 5 - Prob. 1PCh. 5 - The exercise price on one of Flanagan Companys...Ch. 5 - Black-Scholes Model
Assume that you have been...Ch. 5 - Put–Call Parity
The current price of a stock is...Ch. 5 - Prob. 5PCh. 5 - Binomial Model The current price of a stock is 20....Ch. 5 - Prob. 7P
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