Corporate Finance 13

Corporate Finance 13 - 50 70 Call Payoff 10 Option Premium...

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Options Pricing/ Sleepless in LA Monday, November 15, 2010 8:02 AM Issue: understanding of the bond prices Exhibit 2 says bonds worth 136.1 mil if riskless Volatility Option Premium=intrinsic value + time value Ex Current stock price is 50$ Exercise price is $60 Time is 1 year 1 year later Probability .25 .5 .25 Stock price (T) 30
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Unformatted text preview: 50 70 Call Payoff 10 Option Premium 2.5 16.25 Intrinsic Value 15 Time Value 2.5 1.25 Out In At S 50 75 60 X 60 60 60 Option 2.5 16.25 5 Intrinsic 0 15 Time 2.5 1.25 5 Equity holder has a call option on assets of the firm Risky bond= price of risk free bond - Value of put option...
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