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fm13 8 - 0.5(1 0.5 d 2 = 0.1688.0687 0.5(1 0.5 =-0.0933...

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Answers and Solutions: 13 - 8 13-6 P = PV of all expected future cash flows if project is delayed. From Problem 13-1 we know that PV @ Year 1 of Tax Imposed scenario is $15.45 and PV @ Year 1 of Tax Not Imposed Scenario is $26.69. So the PV is: P = [0.5(15.45)+ 0.5(26.690] / 1.13 = $18.646. X = $20. t = 1. r RF = 0.08. σ 2 = 0.0687. d 1 = ln[18.646/20] + [0.08 + .5(.0687)](1) = 0.1688 (.0687)
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Unformatted text preview: 0.5 (1) 0.5 d 2 = 0.1688 - (.0687) 0.5 (1) 0.5 = -0.0933 From Excel function NORMSDIST, or approximated from the table in Appendix A: N(d 1 ) = 0.5670 N(d 2 ) = 0.4628 Using the Black-Scholes Option Pricing Model, you calculate the option’s value as: V = P[N(d 1 )] - t r RF Xe − [N(d 2 )] = $18.646(0.5670) - $20e (-0.08)(1) (0.4628) = $10.572 - $8.544 = $2.028 million....
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  • Spring '08
  • Staff
  • Mathematical finance, Black–Scholes, future cash flows, Black-Scholes option pricing, Excel function NORMSDIST, Tax Imposed scenario

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