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5. Options and Futures a. Your employer is offering you stock options on the firm as part of your pay package. You know the following

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5. Options and Futures a. Your employer is offering you stock options on the firm as part of your pay package. You know the following about this offer: Current stock price - $25 Exercise price - $35 Maturity (yrs.)-2 Risk-free rate -4.5% Stock volatility -30% What is the value of the option? Suppose the Fed reduces Treasury rates to 4.0%, what is the new price of the option? Your company's share price falls to $23, what is the new price of the option? a. Option Pricing Base Fed Price drop Exercise price Maturity Stock price Risk free rate Volatility BS calculations: di N(dl) 1 d2 2 N(2) 3 Price of call

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