Using the Black-Scholes option pricing model, determine the following: a) the value of the call option;...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Using the Black-Scholes option pricing model, determine the following: a) the value of the call option; b) value of the put option. What is the value of the put option using the put-call parity? P-$60 t-0.5 OF.50 X-$70 Rrt-3% Determine the following: a) before tax cost of debt; b) after-tax cost of debt; c) cost of preferred stock; d) cost of common equity (using CAPM); e) cost of common equity (using dividend growth model); f) cost of new common equity( using dividend growth model); g) WACC (3 points cach, 21 points total) Bond maturity (years) Payments per year Annual coupon rate Par Bond price Tax rate Preferred stock price Dat Flotation cost for preferred Po (stock price) Do growth rate Flotation cost for common Beta Market risk premium, RPM Risk free rate, TRE Target capital structure from debt Target capital structure from preferred stock Target capital structure from common stock 15 1 10% $1,000.00 $1,100.00 25% = $65.00 $2.50 5% $80.00 $3.00 7% 9% 0.95 5.0% 3.0% 35% 15% 50% Using the Black-Scholes option pricing model, determine the following: a) the value of the call option; b) value of the put option. What is the value of the put option using the put-call parity? P-$60 t-0.5 OF.50 X-$70 Rrt-3% Determine the following: a) before tax cost of debt; b) after-tax cost of debt; c) cost of preferred stock; d) cost of common equity (using CAPM); e) cost of common equity (using dividend growth model); f) cost of new common equity( using dividend growth model); g) WACC (3 points cach, 21 points total) Bond maturity (years) Payments per year Annual coupon rate Par Bond price Tax rate Preferred stock price Dat Flotation cost for preferred Po (stock price) Do growth rate Flotation cost for common Beta Market risk premium, RPM Risk free rate, TRE Target capital structure from debt Target capital structure from preferred stock Target capital structure from common stock 15 1 10% $1,000.00 $1,100.00 25% = $65.00 $2.50 5% $80.00 $3.00 7% 9% 0.95 5.0% 3.0% 35% 15% 50%
Expert Answer:
Answer rating: 100% (QA)
Stock Option Pricing with BlackScholes Model Unfortunately the information provided about the bond is not directly relevant to the BlackScholes Model ... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
Explain the factors used in the Black Scholes option valuation model. What is the relationship between each factor and the value of the option?
-
A bond with 5 years to maturity and a coupon rate of 6% has a par, or face, value of $20,000. Interest is paid annually. If you required a return of 8% on this bond, what is the value of this bond to...
-
A call option on common stock is being evaluated. If the stock goes down, the option will expire worthless. If the stock goes up, the payoff depends on just how high the stock goes. For simplicity,...
-
Which of the following is not one of the techniques used in webmining? a. Content mining b. Structure mining c. Server mining d. Usage mining e. Data mining Which of the following would you use to...
-
Find the tension in the horizontal supporting cable and the compression in the boom of the crane that supports a 1500-lb beam shown inFigure. 90.0 30.0 Fw 1500 Ib
-
In the diagram, k m, ABC is reflected in line k, and A'B'C' is reflected in line m. Is the distance from B' to m the same as the distance from B" to m? Explain.
-
A wire \(70.0 \mathrm{~mm}\) long is bent in a right angle such that the wire starts at the origin and goes in a straight line to \(x=30.0 \mathrm{~mm}, y=0\), and then in another straight line from...
-
Phillips Industries manufactures a certain product that can be sold directly to retail outlets or to the Superior Company for further processing and eventual sale as a completely different product....
-
17. A concave mirror produces a real image 10mm tall, of an object 2.5mm tall placed at 5cm from the mirror. Calculate focal length of the mirror and the position of the image. 18. An object is...
-
Cheadle Company purchased a fleet of 20 delivery trucks for $8,000 each on January 2, 2019. It decided to use composite depreciation on a straight-line basis and calculated the depreciation from the...
-
If a space probe is sent into an orbit around the Sun that brings it as close as 0.5 AU and as far away as 7.6 AU, is the orbit a circle O an ellipse What will be its orbital period (in years)?...
-
What can shift the intertemporal budget line, IBL? What happens to current and future consumption when IBL shifts occur?
-
What happens in a fixed exchange rate regime if a currency is overvalued? What problem can this create?
-
Why is a theory of consumption also a theory of saving?
-
What do indifference curves show about current and future consumption? Why do they slope downward? Why are they convex?
-
How do changes in the real interest rate affect the IBL and current and future consumption?
-
Can you name the alloy of tin and lead?
-
Assessing simultaneous changes in CVP relationships Braun Corporation sells hammocks; variable costs are $75 each, and the hammocks are sold for $125 each. Braun incurs $240,000 of fixed operating...
-
Sam Inc. leased a photocopier on January 1, 2019, for a three-year period. Payments, which are first due on the commencement date, are $3,000 per year. The $3,000 is comprised of $2,500 for the...
-
During 2021, Surinders Copper Mine Inc. (SCMI) built the infrastructure for an open pit copper mine in a remote area in Northern British Columbia at a total cost of $20 million, paid in cash. The...
-
a. What is the formula for diluted EPS? b. What are dilutive potential ordinary shares? Antidilutive potential ordinary shares? How do they each impact the computation of diluted EPS? c. Describe the...
-
Suppose that the range of the strong interaction were suddenly increased by 20 orders of magnitude, with all other interactions unchanged. Describe the changes that might occur in the structure of...
-
Explain why friction is not considered a fundamental interaction.
-
An \(8.20-\mathrm{kg}\) object is sliding across the ice at \(2.34 \mathrm{~m} / \mathrm{s}\). An internal explosion occurs, splitting the object into two equal chunks and adding \(16 \mathrm{~J}\)...
Study smarter with the SolutionInn App