Description of this paper

1. A call with a strike price of $60 costs $6. A...

Description

Solution


Question

1. A call with a strike price of $60 costs $6. A put with the same strike price and expiration date costs $4. Construct a table that shows the profit from a straddle. For what range of stock prices would the straddle lead to a loss? 2. A company has granted 2,000,000 options to its employees. The stock price and strike price are both $60. The options last for 8 years and vest after 2 years. The company decides to value the options using an expected life of 6 years and a volatility of 22% per annum. Dividends on the stock are $1 per year, payable halfway through each year, and the risk-free rate is 5%. What will the company report as an expense for the options on its income statement?

 

Paper#7243 | Written in 18-Jul-2015

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