“4.1. Abilene Corporation stock sells at a price of $80 a share and the riskless rate
is 7%. Calculate the price of a 9-month call option on Abilene stock with an
exercise price of $70. The of Abilene is 0.55. $21.59
4.2.
Beaumont Co common stock has market price $75 per share and its sigma is 0.3.
Find the value of a European call option, with an exercise price of $80 and
expiring after 73 days, on the Beaumont stock. The riskless rate is 7%. $2.46
4.3.
Corpus Christie Inc has $10 million face value zero-coupon bonds due in 6
years, and its is 0.4. The total market value of Corpus Christie is $25
million and the riskless rate is 4%. The company has 3 million shares
outstanding. Find its price per share. $5.96
4.4.
Dallas Company has a total value of $65 million. Its debt is in the form of
zero-coupon bonds, which will mature in 9 years. The face value of bonds is $15
million. The riskless rate is 3.5% at present. The of Dallas is 0.35. Find
the debt/assets ratio of Dallas. 16.12%
4.5.
Sisters Amy and Beth jointly own El Paso Corporation. Amy’s share is 70%. The
value of the corporation is $500,000 and its risk in terms of is 0.6. Amy
would like to buy Beth out and offers her $150,000 cash or a note for $300,000
payable by El Paso Corporation after 5 years. The riskless rate is 8%. Should
Beth take the cash or the note? Value of note is $145,472.61. Take cash.
4.6.
Thomas and Gerard bought Galveston Corporation by investing $500,000 each.
Thomas was a stockholder, and thus the owner of the company. The corporation
agreed to pay Gerard $1.5 million after ten years for his share of the
business. However, by mutual agreement, they sold the business after 5 years
for $6 million and divided the money according to the option pricing theory.
The riskless rate at the time was 4%, and the of Galveston Corporation was
0.5. Find the amount of money that went to Thomas and to Gerard. Thomas
$4,867,478, Gerard $1,132,522
4.7.
Sam Houston has bought 100 oz of gold at $1150 an oz. He has sold call options
on 30 oz of gold, with exercise price $1200, for $25 each; and options on 40 oz
of gold, exercise price $1175, for $50 each. All options will expire after 6
months and then Houston will liquidate his position. Houston expects the price
of gold after six months to be $1187.50 an oz. He uses 12%, continuously
compounded, as the discount rate. Calculate the NPV of this hedge.
$886.34
4.8. Irving Company has
total value $325 million, and it has $100 million (face value) of zero-coupon
bonds maturing after 10 years. The of Irving is .45 and the risk-free
interest rate is 5%. Using Black-Scholes model, estimate the debt/assets ratio
for the company. 15.62%
4.1.
Abilene Corporation stock sells at a price of $80 a share and the riskless rate
is 7%. Calculate the price of a 9-month call option on Abilene stock with an
exercise price of $70. The of Abilene is 0.55. $21.594.2.
Beaumont Co common stock has market price $75 per share and its sigma is 0.3.
Find the value of a European call option, with an exercise price of $80 and
expiring after 73 days, on the Beaumont stock. The riskless rate is 7%. $2.464.3.
Corpus Christie Inc has $10 million face value zero-coupon bonds due in 6
years, and its is 0.4. The total market value of Corpus Christie is $25
million and the riskless rate is 4%. The company has 3 million shares
outstanding. Find its price per share. $5.964.4.
Dallas Company has a total value of $65 million. Its debt is in the form of
zero-coupon bonds, which will mature in 9 years. The face value of bonds is $15
million. The riskless rate is 3.5% at present. The of Dallas is 0.35. Find
the debt/assets ratio of Dallas. 16.12%4.5.
Sisters Amy and Beth jointly own El Paso Corporation. Amy’s share is 70%. The
value of the corporation is $500,000 and its risk in terms of is 0.6. Amy
would like to buy Beth out and offers her $150,000 cash or a note for $300,000
payable by El Paso Corporation after 5 years. The riskless rate is 8%. Should
Beth take the cash or the note? Value of note is $145,472.61. Take cash.4.6.
Thomas and Gerard bought Galveston Corporation by investing $500,000 each.
Thomas was a stockholder, and thus the owner of the company. The corporation
agreed to pay Gerard $1.5 million after ten years for his share of the
business. However, by mutual agreement, they sold the business after 5 years
for $6 million and divided the money according to the option pricing theory.
The riskless rate at the time was 4%, and the of Galveston Corporation was
0.5. Find the amount of money that went to Thomas and to Gerard. Thomas
$4,867,478, Gerard $1,132,5224.7.
Sam Houston has bought 100 oz of gold at $1150 an oz. He has sold call options
on 30 oz of gold, with exercise price $1200, for $25 each; and options on 40 oz
of gold, exercise price $1175, for $50 each. All options will expire after 6
months and then Houston will liquidate his position. Houston expects the price
of gold after six months to be $1187.50 an oz. He uses 12%, continuously
compounded, as the discount rate. Calculate the NPV of this hedge.
$886.344.8. Irving Company has
total value $325 million, and it has $100 million (face value) of zero-coupon
bonds maturing after 10 years. The of Irving is .45 and the risk-free
interest rate is 5%. Using Black-Scholes model, estimate the debt/assets ratio
for the company. 15.62%”