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Unformatted text preview: Equalize the range to find the number of shares of stock: Option range / Stock range = $4/$5 = 0.8. With 0.8 shares, the stock’s payoff will be either 0.8($18) = $14.40 or 0.8($13) = $10.40. The portfolio’s payoff will be $14.4  $4 = $10.40, or $10.40 – 0 = $10.40. The present value of $10.40 at the daily compounded riskfree rate is: PV = $10.40 / (1+ (0.06/365)) 365/2 = $10.093. Mini Case: 8  1 The option price is the current value of the stock in the portfolio minus the PV of the payoff: V = 0.8($15)  $10.093 = $1.907 ≈ .$1.91. SOLUTION TO SPREADSHEET PROBLEMS 87 The detailed solution for the problem is available both on the instructor’s resource CDROM (in the file Solution for FM 11 Ch 08 P07 Build a Model.xls ) and on the instructor’s side of the textbook’s web site, http://brigham.swcollege.com. Mini Case: 8  2...
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 Spring '08
 Buddin
 Black–Scholes

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