Problem No. 1 on Options based on Chapter 8
A Call Option on the stock of XYZ Company has a market price of $9.00. The price of the underlying stock is $36.00, and the strike price of the option is $30.00 per share. What is the Exercise Value of this Call Option? Ev=stock price – strike price
What is the Time Value of the Option?
Problem No. 2 on Options based on Chapter 8
The Exercise (Strike) Price on ABC Company’s Option is $21.00, its Exercise Value is $23.00, and its Time Value is $7.00. What is the Market Value of the Option? Time value =mkt price – ex value
7= mkt- 23
What is the price of the underlying stock?
Ex value = po-strike price
23= po- 21
Problem on Capital Structure Change – Chapter 15 – No. 4 S=(1-wd)(VOp)
S= 300 MIllion
Problem on Capital Structure Change – Chapter 15 – No. 6 N=no-d/p
N=60 mill-150mill/ 7.50 per share
Problem on Swaps based on Chapter 23
Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%.
Suppose A issues floating-rate debt and B issues fixed-rate debt, after which they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A.
What are the resulting net payments of A and B?
-LIBOR +1% -9.40 -7.95 +7.95 +LIBOR -LIBOR =FIXED 8.95 =LIBOR + 1.45% 0.05 Better Fixed Rate 0.05 Better Floating LIBOR rate
Problem based on Chapter 23 – Futures Contract