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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 stocks payoff will be either 0.8($18) = $14.40 or 0.8($13) = $10.40. The portfolios payoff will be $14.4 - $4 = $10.40, or $10.40 0 = $10.40. The present value of $10.40 at the daily compounded risk-free 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 8-7 The detailed solution for the problem is available both on the instructors resource CD-ROM (in the file Solution for FM 11 Ch 08 P07 Build a Model.xls ) and on the instructors side of the textbooks web site, http://brigham.swcollege.com. Mini Case: 8 - 2...
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This note was uploaded on 04/12/2011 for the course ECON 101 taught by Professor Buddin during the Spring '08 term at UCLA.
- Spring '08