30.. What is the value of a 3-month put with a strike price of S45 given the Bla

Question

30.. What is the value of a 3-month put with a strike price of S45 given the Black-Scholes Option Pricing Model and the following information? Stock price Exercise price Time to expiration Risk-free rate 3-month 45 call $46 $45 25 065 $4.96 31. The assets of Bill's Boats are currently worth $47,600. These assets are expected to be worth either $45,000 or $53,000 one year from now. The company has a pure discount bond outstanding with a $50,000 face value and a maturity date of one year. The risk-free rate is 4 percent. What is the value of the equity in this firm? (Round your answer to the nearest whole dollar.) 32. A company has a single zero-coupon bond outstanding that matures in 5 years with a face value of $40 million. The current value of the companies assets $20 million, and the standard deviation of the return on those assets is 50%. The risk-free rate of return is 4%. a. What is the current market value of the company's equity? b. What is the current market value of the company's debt? c. What is the company's continuously compounded cost of debt? 33. Refer to the information in the previous question (no. 32). The firm has two mutually exclusive projects (A and B) under consideration. The projects affect both the market value of the firm's assets and the firm's asset return standard deviation as follows: Proj. A Proj. B NPV (values in millions) Market value of firm's assets ($20+NPV) Firm's asset return standard deviation $4 $24 40% $2 $22 (a) Find di and N(di) for the firm with each project (b) Using the results in part (a) how much would each project contribute to firm's equity? (c) Are your results in part (b) consistent with the projects' npvs? Why or why not?

Explanation / Answer

using put-call parity

P = C + X*EXP(-r*T) - S

   = 4.96 + 45*EXP(-0.065*0.25) - 46

   = 3.23

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