ActSc371_Lecture 22_Chapter 23 (Ross)

ActSc371_Lecture 22_Chapter 23 (Ross) - ActSc 371 Corporate...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 22 Sections 23.1 – 23.4: Options and Corporate Finance – Basic Concepts Rules(Corporate Finance by Ross et al.) ActSc 371 – Corporate Finance 1 Instructor: Dr. Lysa Porth 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
23.1 Options Options are special contractual arrangements giving the owner the right to buy or sell an asset at a fixed price any time on or before a given date. Example: option on a building might give the buyer the right to buy the building for $1 million on, or any time before January 2015. Special features: Give the buyer the right, but not the obligation, to do something. Buyer uses option only if it is advantageous; otherwise the option can be discarded.
Background image of page 2
Special Vocabulary Exercising the option: the act of buying or selling the underlying asset via the option contract is referred to as exercising the option. Strike or exercise price: the fixed price in the option contract at which the holder can buy or sell the underlying asset is called the strike price or exercise price. Expiration date: the maturity date of the option is referred to as the expiration date. After this date, the option is dead. American option: may be exercised at any time up to and including the expiration date. European option: can be exercised only on the expiration.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
23.2 Call Options Most common type of option is a call option. Gives the owner the right to buy an asset at a fixed price during a particular time period. No restriction on the kind of asset.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 18

ActSc371_Lecture 22_Chapter 23 (Ross) - ActSc 371 Corporate...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online