# Question

Wesley Corp. stock is trading for $25/share. Wesley has 20 million shares outstanding and a market debt-equity ratio of 0.5. Wesley’s debt is zero-coupon debt with a 5-year maturity and a yield to maturity of 10%.

a. Describe Wesley’s equity as a call option. What is the maturity of the call option? What is the market value of the asset underlying this call option? What is the strike price of this call option?

b. Describe Wesley’s debt using a call option.

c. Describe Wesley’s debt using a put option.

a. Describe Wesley’s equity as a call option. What is the maturity of the call option? What is the market value of the asset underlying this call option? What is the strike price of this call option?

b. Describe Wesley’s debt using a call option.

c. Describe Wesley’s debt using a put option.

## Answer to relevant Questions

Use the option data from July 13, 2009 in the following table to determine the rate Google would have paid if it had issued $128 billion in zero-coupon debt due in January 2011. Suppose Google currently had 320 million ...Using the information in Problem 3, use the Binomial Model to calculate the price of a two-year European put option on Natasha stock with a strike price of $7.Using the data in Table 21.1, compare the price on July 24, 2009, of the following options on JetBlue stock to the price predicted by the Black-Scholes formula. Assume that the standard deviation of JetBlue stock is 65% per ...Explain why risk-neutral probabilities can be used to price derivative securities in a world where investors are risk averse.You are a financial analyst at Global Conglomerate and are considering entering the shoe business. You believe that you have a very narrow window for entering this market. Because of Christmas demand, the time is right today ...Post your question

0