Chapter 21 Option pricing
211
21.1 The Binomial Option Pricing Model
Binomial Option Pricing Model
A technique for pricing options based on the
assumption that each period, the stocks return can
take on only two values
Binomial Tree
A timeline with t
Valuing bonds
Prof. Samuele Murtinu
Finance course Prof. Samuele Murtinu
Agenda
 Definition of bonds (FIXED INCOME SECURITIES)
 Relationship between bond prices and their yield to maturity
Finance course Prof. Samuele Murtinu
Definition of bonds
Bond: s
Portfolio theory
Prof. Samuele Murtinu
Finance course Prof. Samuele Murtinu
Agenda

Markovitzs model
Expected Return of a Portfolio
Volatility of a TwoStock Portfolio
Volatility of a Large Portfolio
Risk Versus Return: Choosing an
Efficient Portfolio
T
Payout policy
Prof. Samuele Murtinu
Finance course Prof. Samuele Murtinu
Agenda

Distributions of Cash to the Shareholders

Comparison of Dividends and Share Repurchases

The Tax Disadvantage of Dividends

Payout Versus Retention of Cash

Signaling w
Chapter 20
Financial options
201
Option Basics
Financial Option
A contract that gives its owner the right (but not the
obligation) to purchase or sell an asset at a fixed price
as some future date
Call Option
A financial option that gives its owner th
FINANCE
Written exam
June 24th 2013
NAME and SURNAME _ Matricola _
EXERCISE N. 1a
Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an
entrepreneur. In exchange for the family business, J
This document includes the solutions for questions related to the material covered in class
for Chapters 11, 12 and 13. Thus, you are not required to return this last problem set.
Your work on the problem sets is over!
During last week of classes we will
Chapter 25. Leasing
Corporate Finance
Prof. Samuele Murtinu
Assistant: Kourosh Shafizadeh
251
The Basics of Leasing
252
Definitions
A lease is a contract between two parties; the lessee and the lessor
The lessee is liable for periodic payments in exch
This document includes the solutions for questions related to the material covered in class
for Chapter 14. Thus, you are not required to return this last problem set either.
During the last week of classes we will go over questions on the final exam.
Ple
Corporate Finance: The Core (Berk/DeMarzo)
Chapter 8  Valuing Bonds
8.1 Bond Cash Flows, Prices, and Yields
1) Which of the following statements is false?
A) Bonds are a securities sold by governments and corporations to raise money from investors today
Portfolio Theory (Chapter 10, 11, 12) part 1
102. The following table shows the oneyear return distribution of Startup, Inc.
Calculate
a. The expected return.
b. The standard deviation of the return.
107. The last four years of returns for a
Corporate Finance: The Core (Berk/DeMarzo)
Chapter 4  The Time Value of Money
Use the table for the question(s) below.
Year
0
1
2
3
A
$150
40
80
100
B
$225
175
125
50
6) Draw a timeline detailing the cash flows from investment "A."
Answer:
Diff: 1
Top
Potrfolio Theory/Chapter 10,11,12/part 2
1118. Stock A has a volatility of 65% and a correlation of 10% with your current
portfolio. Stock B has a volatility of 30% and a correlation of 25% with your current
portfolio. You currently hold both stocks
Corporate Finance. Valuing stocks Prof. Samuele Murtinu/Kourosh Shafizadeh
91. Assume Evco, Inc., has a current
price of $50 and will pay a $2 dividend
in one year, and its equity cost of
capital is 15%. What price must you
expect it to