Q: Show how the option delta changes as the stock price rises relative
Show how the option delta changes as the stock price rises relative to the exercise price. Explain intuitively why this is the case. (What happens to the option delta if the exercise price of an optio...
See AnswerQ: Your company has just awarded you a generous stock option scheme.
Your company has just awarded you a generous stock option scheme. You suspect that the board will either decide to increase the dividend or announce a stock repurchase program. Which do you secretly h...
See AnswerQ: Flip back to Tables 6.2 and 6.6,
Flip back to Tables 6.2 and 6.6, where we assumed an economic life of seven years for IM&€™s guano plant. What’s wrong with that assumption? How would you undertake a m...
See AnswerQ: In Section 21-1 we used a simple one-step
In Section 21-1 we used a simple one-step model to value two Google options each with an exercise price of $530. We showed that the call option could be replicated by borrowing $233.22 and investing $...
See AnswerQ: Some corporations have issued perpetual warrants. Warrants are call options issued
Some corporations have issued perpetual warrants. Warrants are call options issued by a firm, allowing the warrant holder to buy the firm’s stock. a. What does the Black–Scholes formula predict for t...
See AnswerQ: Take another look at our two-step binomial trees for Google
Take another look at our two-step binomial trees for Google, for example, in Figure 21.2. Use the replicating-portfolio or risk-neutral method to value six-month call and put options with...
See AnswerQ: You own a parcel of vacant land. You can develop it
You own a parcel of vacant land. You can develop it now, or wait. a. What is the advantage of waiting? b. Why might you decide to develop the property immediately?
See AnswerQ: Gas turbines are among the least efficient ways to produce electricity,
Gas turbines are among the least efficient ways to produce electricity, much less thermally efficient than coal or nuclear plants. Why do gas-turbine generating stations exist? What’s the option?
See AnswerQ: Why is quantitative valuation of real options often difficult in practice?
Why is quantitative valuation of real options often difficult in practice? List the reasons briefly.
See AnswerQ: Alert financial managers can create real options. Give three or four
Alert financial managers can create real options. Give three or four possible examples.
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