# equity - OPTIONWORKSHEET:EQUITYASANOPTION VALUING EQUITY AS...

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OPTION WORKSHEET: EQUITY AS AN OPTION VALUING EQUITY AS AN OPTION This program calculates the value of equity as a call option on the value of the underlying firm. Assumptions 1. All the assumptions underlying the Black-Scholes model apply 2. The value of the firm is known. The user has to input the following variables 1. Current value of the underlying firm (or its assets). 2. Variance in the ln(value) of the underlying firm. 3. Face Value of the outstanding debt. 4. Riskless interest rate that corresponds to average duration of debt. 5. Face-value weighted duration of the debt outstanding of the firm. 6. Expected dividend yield on the stock of the firm. Inputs relating the underlying asset Enter the value of the firm = \$1,200.00 (in currency) There are two ways of estimating standard deviation. One is to use the firm's own stock and bond prices to estimate it. The other is to use the variance of the industry to which your firm belongs.
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