Solution To 4.13
Solution To 4.13
Solution To 4.13
(i) (ii)
Current Asset Price : (S) 55.000 55.000
Strike Price of Call: (X) 55.000 60.000
Rf(Annual) : ( r ) 0.100 0.100
Variance(/yr) :(σ)^2 0.250 0.250
Time(yrs) to Expiration: (T) 3.000 3.000
24.051*2%= 0.481
22.401*1%= 0.224
18.239*1%= 0.1824
+ (r + 1/2σ2)T] / √σ2T
(iii)
55.000
75.000
0.100
0.250
3.000
18.239
0.421
-0.445
0.663
0.328
0.887
8874234.299
13 You are the senior assistant to the Chairman of the Board of Hi-Teck Inc. In order to attract the chief operating offic
(i) 2% of any price appreciation in the price of the stock up to $60 per share;
(ii) 3% of any price appreciation above $60 but less than $75 per share;
(iii) 4% of any price appreciation above $75 per share;
The price appreciation is to be computed with respect to the share price exactly 3 years from now, and there is no early paym
The annual (not continuously compounded) risk free rate is 10% and the stock volatility is 50% annualized. The current price o
Use the Black Scholes formula to value the supplement. Should you be concerned in your calculations that the new chief oper
w, and there is no early payment of the supplement. The aggregate value of the supplement is based on the price appreciation of 10 million
nualized. The current price of the stock is $55.
tions that the new chief operating officer might increase the expected rate of price appreciation by wise actions?