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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
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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