James Holliday_Week3Assignment_FI516

# James Holliday_Week3Assignment_FI516 - Problem 23-3 PV =...

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

Problem 8-1 Exercise value = Current stock price – strike price = \$30 - \$25 = \$5 Time value = Option price – Exercise value = \$7 - \$5 = \$2 Problem 8-2 Time Value = Market price of option - Exercise value V - \$22 = \$5 V = \$27 Exercise value = P0 - Strike price P0 - \$15 = \$22 P0 = \$37 Problem 15-8 wce = 1 – 0.2 = 0.8 D/S = wd/wce = 0.2/0.8 = 0.25 bU = b/[1 + (1-T)(D/S)] = 1.15/[1 + (1-0.40)(0.25)] = 1.0

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Problem 23-3 PV = 1.005 \$1,000 = \$1,005 100 bonds = \$100,500 rd = 2.9784% 2 = 5.9569% PV = \$897.4842 100 = \$89,748.42 The contracts value decreased from \$100,500 to \$89,748.42 Problem 23-4 If Carter swaps:-(LIBOR + 2%) 7.95% + LIBOR = -9.95% This swap would be good for Carter If Brence swaps:-11% + 7.95% - LIBOR = -(LIBOR + 3.05%) This swap would be good for Brence....
View Full Document

## This note was uploaded on 05/01/2011 for the course FINANCE 516 taught by Professor Anderson during the Spring '11 term at Keller Graduate School of Management.

### Page1 / 2

James Holliday_Week3Assignment_FI516 - Problem 23-3 PV =...

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

View Full Document
Ask a homework question - tutors are online