Fin-516 Essay

496 WordsMay 26, 20132 Pages
Problem No. 1 on Options based on Chapter 8 A Call Option on the stock of XYZ Company has a market price of $9.00. The price of the underlying stock is $36.00, and the strike price of the option is $30.00 per share. What is the Exercise Value of this Call Option? What is the Time Value of the Option? Exercise value 307 Time value pg 308 (The difference between the option’s price and its exercise value is called the time value because it represents the extra amount over the option’s immediate exercise value that a purchaser will pay for the chance the stock price will appreciate over time.) Problem No. 2 on Options based on Chapter 8 The Exercise (Strike) Price on ABC Company’s Option is $21.00, its Exercise Value is $23.00, and its Time Value is $7.00. What is the Market Value of the Option? What is the price of the underlying stock? If YOU KNOW THE TIME & EXERCISE VALUE YOU CAN BACK INTO THE MARKET VALUE Problem on Capital Structure Change – Chapter 15 – No. 4 - SKIP Problem on Capital Structure Change – Chapter 15 – No. 6 – SKIP THE MOVEMENT OF CAPITALIZATION PAGE 625 – 629 IN ORDER TO MOVE FROM ONE CAPITAL STRUCTURE TO ANOTHER Problem on Swaps based on Chapter 23 Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%. Suppose A issues floating-rate debt and B issues fixed-rate debt, after which they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A. What are the resulting net payments of A and B? Problem based on Chapter 23 – Futures Contract What is the implied interest rate yield on a Treasury Bond ($100,000) futures contract that settled at 100’24 (or 100 24/32)? If interest rates increased by

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