Options and Futures

Your employer is offering you stock options on the firm as part of your pay package. You know the following about this offer:

What is the value of the option? Suppose the Fed reduces Treasury rates to 2.0%, what is the new price of the option? After the rate reduction, your company's share price falls to $28, what is the new price of the option?

IMPORTANT: SHOW FORMULAS USED TO CALCULATE

Current Stock Price Exercise Price Maturity (yrs) Risk-free Rate Stock Volatility $33 $38 1 2.5% 20% A D E 1 B a. Option Pricing Base Fed Price drop 2 3 Exercise price 4 Maturity 5 Stock price 6 Risk free rate 7 Volatility 8 BS calculations: 9 d1 10 N(dl) 11 d2 12 N(02) 13 Price of call #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0