the company's stock price (over and above the current price) up to an increase of $10;...
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the company's stock price (over and above the current price) up to an increase of $10; for every dollar increase over $10, the executive will receive $500,000. The current price of the stock is $1451/8. The risk-free rate is 6.36%. You remember from a few months back that all really revolves around the volatility of the company's stock and you happen to have a newspaper that gives the prices of current options on the stock with the same 64-day maturity: $145 1/8 Current stock price Exercise price Option price Option 1 $140 $11.534 $145 18 Option 2 $150 $6.509 $14518 Option 3 $160 $3.325 Try to come up with a single volatility that best predicts the observed prices and proceed to evaluate the value of the compensation contract. the company's stock price (over and above the current price) up to an increase of $10; for every dollar increase over $10, the executive will receive $500,000. The current price of the stock is $1451/8. The risk-free rate is 6.36%. You remember from a few months back that all really revolves around the volatility of the company's stock and you happen to have a newspaper that gives the prices of current options on the stock with the same 64-day maturity: $145 1/8 Current stock price Exercise price Option price Option 1 $140 $11.534 $145 18 Option 2 $150 $6.509 $14518 Option 3 $160 $3.325 Try to come up with a single volatility that best predicts the observed prices and proceed to evaluate the value of the compensation contract.
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To find the implied volatility that best predicts the observed option prices we can use an option pr... View the full answer
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