Chapter 9, Financial Options and Applications in Corporate Finance Video Solutions, Financial Management: Theory and Practice

Problem 1

A call option on the stock of Bedrock Boulders has a market price of $\$ 7 .$ The stock sells fur $\$ 30$ a share, and the option has a strike price of $\$ 25$ a share. What is the exercise value of the call option? What is the option's time value?

Kari Hasz

Numerade Educator

01:18

Problem 2

The exercise price on one of Flanagan Company's options is $\$ 15,$ its exercise value is $\$ 22,$ and its time value is $\$ 5 .$ What are the option's market value and the price of the stock?

Oluwadamilola Ameobi

Numerade Educator

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Problem 3

Assume you have been given the following information on Purcell Industries:
Using the Black-Scholes Option Pricing Model, what would be the value of the option?

James Kiss

Numerade Educator

04:14

Problem 4

The current price of a stock is $\$ 33,$ and the annual risk-free rate is $6 \% .$ A call option with a strike price of $\$ 32$ and 1 year until expiration has a current value of $\$ 6.56$ What is the value of a put option written on the stock with the same strike price and expiration date as the call option?

Narayan Hari

Numerade Educator

01:17

Problem 5

Use the Black-Scholes model to find the price for a call option with the following inputs: (1) current stock price is $\$ 30,(2)$ strike price is $\$ 35,(3)$ time to expiration is 4 months, (4) annualized risk-free rate is $5 \%,$ and (5) variance of stock return is 0.25

Trinity Steen

Numerade Educator

01:01

Problem 6

The current price of a stock is $\$ 20 .$ In 1 year, the price will be either $\$ 26$ or $\$ 16 .$ The annual risk-free rate is $5 \% .$ Find the price of a call option on the stock that has a strike price of $\$ 21$ and that expires in 1 year. (Hint: Use daily compounding.

Nick Johnson

Numerade Educator

00:50

Problem 7

The current price of a stock is $\$ 15 .$ In 6 months, the price will be either $\$ 18$ or \$13. The annual risk-free rate is $6 \%$. Find the price of a call option on the stock that has a strike price of $\$ 14$ and that expires in 6 months. (Hint: Use daily compounding.)

Subhadeepta Sahoo

Numerade Educator

01:26

Problem 8

Start with the partial model in the file $F M 12$ Ch 09 P08 Build a Model.xls from the textbook's Web site. Rework Problem $9-3$. Then work the next two parts of this problem given below.
a. Construct data tables fur the exercise value and Black-Scholes option value for this option, and graph this relationship. Include possible stock price values ranging up to $\$ 30.00$
b. Suppose this call option is purchased today. Draw the profit diagram of this option position at expiration.

Jodi Folley

Numerade Educator