HBS CASE Assuming Arley's common stock would sell at $6.5 per share in the public market, is
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HBS CASE Assuming Arley's common stock would sell at $6.5 per share in the public market, is the proposed "money-back guarantee" likely to have sufficient value to bridge the $1.5 gap noted in the case? (Note: In October 1984, the two-year Treasury rate was about 11% per annum. The price volatility of publicly traded common stocks similar to Arley was estimated at a standard deviation of 40% per annum.). First, calculate the price of the put option using the B-S formula. Then, calculate the price again using the Put-Call parity relation. Explain the difference. given Stock price (S) = $6.5.
- Strike price (K) = $8
- Time to expiration (t) = 2 years
- Risk-free rate (r) = 11% (2-year Treasury rate in October 1984)
- Volatility () = 40% (estimated for similar stocks
Related Book For
Intermediate Financial Management
ISBN: 978-1111530266
11th edition
Authors: Eugene F. Brigham, Phillip R. Daves
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