PLEASE SHOW EXEL FORMULAS

4. 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 $13

Exercise Price $19

Maturity (yrs) 3

Risk-free Rate 2.1%

Stock Volatility 30%

What is the value of the option? Suppose the Fed raises Treasury rates to 2.3%, what is the new price of the option? After this Fed action, your

company's share price falls to $12, what is the new price of the option?

b. Your cousins grow corn in Wisconsin and plan to harvest 10,000,000 bushels at

the end of the season. They are unsure whether to sell the futures

contracts and lock the price in at $5.40/bushel or take a gamble and sell it all at the spot price at season's end. They think they can get $4.80/bushel based on historical prices and their own analysis.

Assuming no transaction costs and each contract covers 5,000 bushels,

what will the cousins' profit/loss be if they sell the contracts and the spot

price is $5.44 at maturity? Ukraine had a bumper harvest and spot prices fall to $5.33/bushel, what will the cousins' profit/loss be now?

c. Because its financial position has strengthened considerably very recently, Argo Airlines is offered an interest rate swap - fixed to floating (LIBOR). The details are as follows:

Current Argo Bond Maturity 10 years

Bond Face Value $333M

Current Bond Rate 4.5% per year, fixed

Floating rate LIBOR + 100 basis points

Projected LIBOR rates

3.3% (years 1-2)

3.4% (years 3-4)

3.5% (years 5-6)

3.6% (years 7-10)

AutoSave O OFF A A @ ? - C ... MGMT332_Excel_Template_Final_Exam (2) Q Home Insert Draw Page Layout Formulas Data Review View . Tell me Share Comments A Cut Times New Roman 12 B Wrap Text v Accounting Accents Accent6 Comma Comma [0] Xv LG Copy Fill v Paste Percent Insert Delete Format Sort & Find & Analyze Format BIUV A Merge & Center v $ % " Conditional Format Currency Currency [0] Formatting as Table Clear v Filter Select Data Open recovered workbooks? Your recent changes were saved. Do you want to continue working where you left off? Yes No K23 Jx D E F G H K L M N O P Q R S T U V W X Y Z AA AB AC AD b. Futures Prices Price drop Base Ukraine Bushels Bushels/contract # of contracts Contract price Spot price Profit/(Loss) to cousins #DIV/O! 10 #DIV/O! c. Interest Rate Swap #DIV/O! Cash Flows #DIV/O! Bond outstanding Original Swap Pits. Net #DIV/O! Maturity (yrs.) Year 1 Fixed rate Year 2 Spread over LIBOR Year 3 LIBOR: Year 4 Years 1-2 Year: Years 3-4 Year 6 Years 5-6 Year 7 Years 7-10 Year 8 Year Year 10 Present value of net 39 40 Prob. 1 Prob. 2 Prob. 3 Prob. 4 V. MAR 2021 + Ready 122%