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

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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
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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 contract’s 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....
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