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Brian Lin
D01278742
Week 3 Homework
Chapter 8 Questions
Problem 81
A call option on the stock of Bedrock Boulders has a market price of $7.
The stock sells for
$30 a share, and the option has a strike price of $25 a share.
What is the exercise value of
the call option?
What is the option’s time value?
Stock Price
$30
(a)
Strike Price
$25
(b)
Price of Option
$7
(c)
Exercise Value of Option
$5
(d) = (a) – (b)
Time Value of Option
$2
(c) – (d)
Problem 82
The exercise price on one of Flanagan Company’s options is $15, its exercise value is $22,
and its time value is $5.
What are the option’s market value and the price of the stock?
Exercise Value of Option
$22
Exercise Price of Option
$15
Time Value of Option
$5
Option’s Market Value
$27
(Exercise Value of Option + Time Value of Option)
Price of the Stock
$37
(Price of Stock – Exercise Value of Option
= Exercise Price of Option)
Chapter 15 Questions
Problem 158
The Rivoli Company has no debt outstanding, and its financial position is given by the
following data:
Assets (book = market)
= $3M
EBIT
= $500K
Cost of Equity, r
s
= 10%
Stock Price, P
0
= $15
Shares Outstanding
= 200,000
Tax Rate, T (Fedplusstate)= 40%
The firm is considering selling bonds and simultaneously repurchasing some of its stock.
If
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This note was uploaded on 10/13/2011 for the course MAFM FI516 taught by Professor Anthonycriniti during the Spring '10 term at Keller Graduate School of Management.
 Spring '10
 ANTHONYCRINITI

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