fm9 3 - 9-5 d1 = ln (P/X) + [rRF + ( 2 / 2)]t t = ln ($30...

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Answers and Solutions: 9 - 3 9-5 . 3319 . 0 33333 . 0 5 . 0 ) 333333 . 0 )]( 2 / 25 . 0 ( 05 . 0 [ ) 35 /$ 30 ($ ln t σ )]t 2 / 2 ( σ RF [r (P/X) ln 1 d = + + = + + = d 2 = d 1 σ (t) 0.5 = -0.3319 – 0.5(0.33333) 0.5 = -0.6206. N(d 1 ) = 0.3700 (from Excel NORMSDIST function). N(d 2 ) = 0.2674 (from Excel NORMSDIST function). V = P[N(d 1 )] - t r RF Xe [N(d 2 )] = $30(0.3700) - $35e (-0.05)(0.33333) (0.2674) = $11.1000 - $9.2043 = $1.8957 $1.90. 9-6 The stock’s range of payoffs in one year is $26 - $16 = $10. At expiration, the option will be worth $26 - $21 = $5 if the stock price is $26, and zero if the stock price $16. The range of payoffs for the stock option is $5 – 0 = $5.
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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