Lectures 6_Spring 2008_Finalized version

Lectures 6_Spring 2008_Finalized version - YiLin Wu Spring...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
YiLin Wu Spring 2008 ID Name *(1) For the black scholes pricing, d1, d2, N(d 1 1 1 ), N(d 2 ), call price, and put price should be calculated at least up to the first FOUR decimal places right to the decimal point. *(2) The same holds for the binomial pricing. All the calculation (risk-neutral probability, the replicating portfolio, binomial call price, and binomial put price) should be at least up to the first FOUR decimal places right to the decimal point. Computations 1. Suppose that corporate A asset value is 125,000 today, corporate A has 150 units 12-month zero-coupon debt with face value $1000, each of which is convertible into 40 shares of equity at the end of 12 month, and 1000 non- dividend-paying equity outstanding, the annual riskfree rate is r=8%, and σ A =0.5. what is the convertible bond’s price today and what is the equity price today?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Suggested Solution 1. Suppose that the 150 units 12-month zero-coupon debt with face value $1000 have no conversion rights. What is the bond’s price today?
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Lectures 6_Spring 2008_Finalized version - YiLin Wu Spring...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online