2 What happens to the premium of option price over exercise value as the stock

# 2 what happens to the premium of option price over

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2. What happens to the premium of option price over exercise value as the stock price rises? Why? f. In 1973, Fischer Black and Myron Scholes developed the Black-Scholes Option Pricing Model. 1. What assumptions underlie this model? 2. Write the three equations that constitute the model.

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3. What is the value of the following call option according to this model? Stock price = \$27 Exercise price = \$25 Time to expiration = 6 months Risk-free rate = 6.0% Stock return variance = 0.11 g. Disregard the information in part f. Determine the value of a firm's call option using the binomial approach by creating a riskless hedge given the following information. A firm's current stock price is \$15 per share. Options exist that permit the holder to buy one share of the firm's stock at an exercise price of \$15. These options expire in 6 months, at which time the firm's stock will be selling at one of two prices, \$10 or \$20. The risk-free rate is 6%. What is the value of this firm's call option? h. What effect does each of the following call option parameters have on the value of a call option? 1. Current stock price 2. Exercise price 3. Length of the option period 4. Risk-free rate 5. Variability of the stock price i. What are the differences between forward and futures contracts? j. Explain briefly how swaps work. k. Explain briefly how a firm can use futures and swaps to hedge risk. 1. What is corporate risk management? Why is it important to all firms? Gi s r ng b n v a đ c thuê làm nhà phân tích tài chính c a Tropical Sweets Inc., m t ử ằ ượ công ty trung bình California chuyên s n xu t k o kỳ l t các lo i trái cây nhi t đ i ạ ừ nh xoài, đu đ và chà là. Giám đ c đi u hành c a công ty, George Yamaguchi, g n đây ư đã tr v t m t h i ngh đi u hành công ty San Francisco. M t trong nh ng phiên anh ề ừ tham d là v nhu c u c p thi t cho các công ty nh h n đ đ a ra các ch ng trình ế ơ ư ươ qu n lý r i ro doanh nghi p. Vì không ai Tropical Sweets quen thu c v i nh ng đi u c ơ b n v các công c phái sinh và qu n lý r i ro doanh nghi p, Yamaguchi đã yêu c u b n chu n b m t b n báo cáo ng n g n r ng các giám đ c đi
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