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1. Suppose you believe that Du Ponts stock price is going to decline from its current
level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-
month put option giving you the right to sell 100 shares at a price of $83.00 per
share. If you bought a 100-share contract for $510.25 and Du Ponts stock price
actually dropped to $63.00, what would be your net profit (after transactions costs
but before taxes)?
2. Calvin Lianza is interested in using the Black-Scholes model to value call options on
the stock of Abenir Inc. Calvin has accumulated the following information:
Given this information, the analyst is then able to calculate some other necessary
components of the Black-Scholes model:
d1 = 0.25.
d2 = 0.05.
N(d1) = 0.5987.
N(d2) = 0.5199.
N(d1) and N(d2) represent areas under a standard normal distribution function. Using
the Black-Scholes model, what is the value of the call option?
3. Below is the financial data of the option contract entered into by Aime Sotes
Options exercise price = $15; Exercise value = $22; Premium value = $5;
4. Blanche Pupos is interested in using the Black-Scholes model to value call options on
the stock of Membreve Inc. Blanche has accumulated the following information:
N(d1) and N(d2) represent areas under a standard normal distribution function. Using
the Black-Scholes model, what is the value of the call option?
5. Ronnie Gravoso is interested in using the Black-Scholes model to value call options on
the stock of Labadan Inc. Ronnie has accumulated the following information:
N(d1) and N(d2) represent areas under a standard normal distribution function. Using
the Black-Scholes model, what is the value of the call option?
6. Kelvin Estrera believe that Andrinos stock price is going to increase from its current
level of $1,110.00 sometime during the next 3 months. For $890.00 Kelvin could buy
a 3-month call option giving him the right to buy 300 shares at a price of $1,000 per
share. If Kelvin bought a 300 -share contract for $890 and Andrinos stock price
actually increased to $1200.00, what would be his net profit (after transactions costs
but before taxes)?
Lorenze Abellaneda is selling his one-year old Lambhorgini for only $2,000,000. Jane
Cuizon is interested in buying said car but cannot produce the amount not until after
three months. Lorenze offered Jane to enter into an option contract to buy the car
within three months for 10,000.
10. After three months, the market value of the car rose by 10%. Should Jane exercise
the option? If yes, how much is the exercise value? If not, explain why Jane should
not exercise and just walk away?
Use the Black-Scholes-Merton model adjusted for cash flows on the underlying to
calculate the price of a call option in which the underlying is priced at 225, the
exercise price is 200, the continuously compounded risk-free rate is 5.25 percent,
the time to expiration is three years, and the volatility is 0.15. The effect of cash
flows on the underlying is indicated below for two alternative approaches:
11.The present value of the cash flows over the life of the option is 19.72.
12.The continuously compounded dividend yield is 2.7 percent.
Given this information, the analyst is then able to calculate some other necessary
components of the Black-Scholes model:
13.What is d1?
14.What is N(d1)?
15.What is d2?
16.What is Nd2?
17.What is the value?
Cary Salces is interested in using the Black-Scholes model to value call options on the
stock of Arlu Inc. Cary has accumulated the following information:
Given this information, the analyst is then able to calculate some other necessary
components of the Black-Scholes model.