Questions from Corporate Finance

Q: The current price of the stock of Mont Tremblant Air is C

The current price of the stock of Mont Tremblant Air is C$100. During each six-month period it will either rise by 11.1% or fall by 10% (equivalent to an annual standard deviation of 14.9%). The inter...

Q: The current price of United Carbon (UC) stock is $

The current price of United Carbon (UC) stock is $200. The standard deviation is 22.3% a year, and the interest rate is 21% a year. A one-year call option on UC has an exercise price of $180. a. Use...

Q: Suppose you construct an option hedge by buying a levered position in

Suppose you construct an option hedge by buying a levered position in delta shares of stock and selling one call option. As the share price changes, the option delta changes, and you will need to adju...

Q: a. In Section 21-3 we calculated the risk (

a. In Section 21-3 we calculated the risk (beta) of a six-month call option on Google stock with an exercise price of $530. Now repeat the exercise for a similar option with an exercise price of $450....

Q: a. Can the delta of a call option be greater than

a. Can the delta of a call option be greater than 1.0? Explain. b. Can it be less than zero? c. How does the delta of a call change if the stock price rises? d. How does it change if the risk of th...

Q: Other things equal, which of these American options are you most

Other things equal, which of these American options are you most likely to want to exercise early? a. A put option on a stock with a large dividend or a call on the same stock. b. A put option on a...

Q: Is it better to exercise a call option on the with-

Is it better to exercise a call option on the with-dividend date or on the ex-dividend date? How about a put option? Explain.

Q: Use the Black–Scholes program from the Beyond the Page feature

Use the Black–Scholes program from the Beyond the Page feature to value the Owens Corning warrants described in Section 21-4. The standard deviation of Owens Corning stock was 41% a year and the inter...

Q: A start-up company is moving into its first offices and

A start-up company is moving into its first offices and needs desks, chairs, filing cabinets, and other furniture. It can buy the furniture for $25,000 or rent it for $1,500 per month. The founders ar...

Q: Use the put-call parity formula (see Section 20-

Use the put-call parity formula (see Section 20-2) and the one-period binomial model to show that the option delta for a put option is equal to the option delta for a call option minus 1. Section 20-2...