1. You can find option prices on finance.yahoo.com. Enter the company symbol and then click on Options. Try looking up option prices for Intel (INTC) and Pfizer (PFE). Does the price of calls increase or decrease with (a) the exercise price and (b) time to expiration? Would your answer be the same for puts? Why or why not?

2. Try using the Black-Scholes model to value a call option on Facebook or Amazon. The inputs are the same as those in our simple valuation example, except that instead of putting in the spread of possible stock prices, you must put in the standard deviation of stock returns. Assume a standard deviation of 28% for both shares. (At the time of writing, neither firm pays a dividend.) How different are the values you obtain from the prices shown on finance.yahoo.com? What happens to the option value if you change the standard deviation? Can you explain?

3. Find IBMs most recent income statement. What was the value that IBM assigned to the stock options it granted its employees in the most recent year? How did IBM estimate the value?