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AutoSave OFF Home Insert m. Paste Page 1 of 2 B Draw Design Layout Calibri (Bo... V 12 I 2 U 611 words ab 2 V A A Aa x A References V English (United States) A Po V Mailings Review V V W Option Problems_Harder Saved to my Mac View Grammarly V V V 3 Tell me AaBbCcDdEe Normal AaBb CcDdEe No Spacing Aa BbCcDd Heading 1 AaBbCcDdE Heading 2 Construction must occur immediately and cannot be delayed. Construction costs are $75 per office or $90 per apartment. 6 3. Use the Black-Scholes Option Pricing Model for the following problem. Given: a stock price of $70; an exercise price of $70; 70 days until the expiration of the option; a risk free interest rate of 6%; the annualized volatility of 0.3242. No dividends will be paid before option expires. Compute the value of the call option. 4. A vacant lot has been zoned to construct today either 50 offices or 50 apartments. Assume that: The current price of offices is $100 and the current price of the apartments is $105. The rental rate is $10 per office and also $10 per apartment (net of expenses, to be received at the end of the year). The real estate market can evolve as follows: In one year: If the real estate market booms, offices will sell for $140 and apartments for $125. If the real estate market does poorly, offices will sell for $85 and apartments for $100. Note: Probability of boom is not known; risk-free rate of return is not known. a) What is the value of vacant lot? b) Suppose now that, in addition to the previous information, a new construction technology becomes available. This technology allows building offices that can be converted into apartments by incurring in a $10 per unit (next year) if the office is actually converted into an apartment. Find the value of the lot now. c) Suppose now that the cost of converting offices into apartments is $20 per unit (again, to be paid next year). Value the lot now. Explain. > Styles Pane 7 Focus Dictate Comments Editor G Open Grammarly I F Editing MathType Share 130% AutoSave OFF Home Insert m. Paste Page 1 of 2 B Draw Design Layout Calibri (Bo... V 12 I 2 U 611 words ab 2 V A A Aa x A References V English (United States) A Po V Mailings Review V V W Option Problems_Harder Saved to my Mac View Grammarly V V V 3 Tell me AaBbCcDdEe Normal AaBb CcDdEe No Spacing Aa BbCcDd Heading 1 AaBbCcDdE Heading 2 Construction must occur immediately and cannot be delayed. Construction costs are $75 per office or $90 per apartment. 6 3. Use the Black-Scholes Option Pricing Model for the following problem. Given: a stock price of $70; an exercise price of $70; 70 days until the expiration of the option; a risk free interest rate of 6%; the annualized volatility of 0.3242. No dividends will be paid before option expires. Compute the value of the call option. 4. A vacant lot has been zoned to construct today either 50 offices or 50 apartments. Assume that: The current price of offices is $100 and the current price of the apartments is $105. The rental rate is $10 per office and also $10 per apartment (net of expenses, to be received at the end of the year). The real estate market can evolve as follows: In one year: If the real estate market booms, offices will sell for $140 and apartments for $125. If the real estate market does poorly, offices will sell for $85 and apartments for $100. Note: Probability of boom is not known; risk-free rate of return is not known. a) What is the value of vacant lot? b) Suppose now that, in addition to the previous information, a new construction technology becomes available. This technology allows building offices that can be converted into apartments by incurring in a $10 per unit (next year) if the office is actually converted into an apartment. Find the value of the lot now. c) Suppose now that the cost of converting offices into apartments is $20 per unit (again, to be paid next year). Value the lot now. Explain. > Styles Pane 7 Focus Dictate Comments Editor G Open Grammarly I F Editing MathType Share 130%
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3 To compute the value of the call option using the BlackScholes Option Pricing Model we need the following inputs Stock price S 70 Exercise price E 70 Time to expiration T 70365 years since there are ... View the full answer
Related Book For
Managerial Statistics
ISBN: 9780534389314
1st Edition
Authors: S. Christian Albright, Wayne L. Winston, Christopher Zappe
Posted Date:
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