Boeing plans to give American airlines an option to buy wide-body 9W9 aircraft at the end of three years for $200 million, and the price of 9W9 aircraft today is $180 million. The life of the aircraft is 20 years. Boeing's business consists of 50% in commercial aircraft and 50% in defense projects. The volitility of Boeing stock is 3% per month. Airbus is 100% in the commercial aircraft business. The volitility of Airbus stock is 5% per month. The three year risk-free rate is 3% per year, and the twenty-year rate is 5% per year.

What type of option is this for Boeing?

A Long put

B Long call

C Short put

D Short call

What is the underlying asset value for the option?

A $180 million

B $190 million

C $200 million

D $300 million

What is the exercise price for the option?

A $500 million

B $190 million

C $390 million

D $200 million

What is the time to maturity for the option?

A 3

B 10

C 5

D 20

What is the annual volitility to use for the option (%/Yr.)?

A 10.4%

B 17.4%

C. 5.0%

D 3.0%