Finance Chapter 6 this larger value inserted into the cumulative

Revised Shockley, Chapter 6 Answers:

Problem 1:

Expected Future Payoff of the Option:

Option Value:

Problem 2:

The appropriate calculation is:

Note, this larger value inserted into the cumulative normal distribution indicates an

Problem 3:

Profitability:

Problem 4:

First, evaluate the probability that the project will be worth more than $30 million.

Problem 5:

The current price of the underlying the security is the present value of the stage 2

Problem 6:

( )

8221.100.1*%60exp ==U

Year 0:

Year 1:

Year 2:

Year 3:

Option Price:

Year 0:

Year 1:

Year 2:

Year 3:

$ 42.26

$ 111.38

$ 293.53

$ 773.58

$ 0.00

Problem 7:

Year 0:

Year 0.5:

Year 1:

Year 1.5:

Year 2:

Year 2.5:

Year 3:

$ 185.00

$ 282.77

$ 432.20

$ 660.60

$1,009.70

$1,543.30

$2,358.88

$ 121.04

$ 185.00

$ 282.77

$ 432.20

$ 660.60

$1,009.70

$ 79.19

$ 121.04

$ 185.00

$ 282.77

$ 432.20

$ 51.81

$ 79.19

$ 121.04

$ 185.00

$ 33.90

$ 51.81

$ 79.19

$ 22.18

$ 33.90

$ 14.51

Option Price:

Year 0:

Year 0.5:

Year 1:

Year 1.5:

Year 2:

Year 2.5:

Year 3:

$ 50.74

$ 100.68

$ 195.89

$ 371.88

$ 684.23

$1,207.91

$2,013.28

$ 15.72

$ 34.15

$ 73.42

$ 155.81

$ 325.21

$ 664.10

$ 2.63

$ 6.31

$ 15.10

$ 36.16

$ 86.60

$ 0.00

Problem 8:

Problem 9:

The colleague should be informed that the current value of the underlying security is the

Problem 10:

In the money finish:





Phase 2 worth more than $10 million: