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ThefollowingarepricesofoptionstradedonMicrosoftCorporationwhichpaysno dividends.
Instructions(a) Calculate the net present value of the project.(b) To gauge the
September 15, 2020SummerFun Inc. produces a variety of recreation and leisure products. The produ
September 15, 2020ThefollowingarepricesofoptionstradedonMicrosoftCorporationwhichpaysno
dividends.CallPutK=85 K=90K=85 K=901month2.751.004.507.503month4.002.755.759.006month7.756.008.0012.00Thestock is tradingat $83 andthe
annualizedriskless rate is 3.8%. The
standard deviation in ln stock prices (based upon historical data) is 30%.a.Estimate
thevalueofathree-monthcallwithastrikeprice
of85.b.UsingtheinputsfromtheBlack-Scholesmodelspecifyhowyouwouldreplicate
his call.c.Whatistheimpliedstandarddeviationinthiscall?d.Assumenowthatyoubuyacallwithastrikepriceof85andsellacallwithastrike
priceof90.Drawthepayoffdiagramonthisposition.e.Usingput-callparityestimatethevalueofathree-month
putwithastrikepriceof 85.
