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As discussed in Application 4.4: Puts, Calls, and Black-Scholes, a call option provides you with the option

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As discussed in Application 4.4: Puts, Calls, and Black-Scholes, a call option provides you with the option to buy a share of, say, Microsoft stock at a specified price of $60. Suppose that this option can be exercised only at exactly 10:00 am on June 1, 2009. What will determine the expected value of the transaction underlying this option? What will determine the variability around this expected value? Explain why the greater this expected variability, the greater is the value of this option.
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Intermediate Microeconomics and Its Application

Intermediate Microeconomics and Its Application

ISBN: 978-1133189039

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Authors: Walter Nicholson, Christopher M. Snyder

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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.

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