Corpfin Mod 23: Homework


Corpfin Mod 23: Homework

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Rick Sutherland
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Using σ = 0.35 and t = 0.5, I get d1 = 0.0343, d2 = -0.2132, Value of Call = $7.10 and Value of Put = $8.89.
windlove
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8% is the effective annual rate. so in terms of the nominal rate, the nominal interest rate compounded semiannual annually should be 0.07846, hence the six month rate is 0.03923. In the formula t is in term of year. so t=1/2 for our task.

Is this correct?


Waddle
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windlove, you're right about the nominal rate compounded semiannually, and t = 1/2.  But use r = .08 in the formulas.  The values of the call and put mentioned previously are correct.
Earl1783
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I agree with values for d1 and d2, but I have Call=6.87 and Put=8.66

By Put Call Parity:

6.87-8.66=80-81.79

C-P=S-PV(strike)


RachaelT
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I did not get the same answers.... however, my Put-Call parity worked fine.

My results:

G) 4.79 for my Call Value

H) 6.58 for my put value

I)   (put) + (share) = (call) + PV(EX)

     6.58 + 80 = 4.79 + 81.79

     86.58 = 86.58

 

 



Rachael


guava
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I agreed. For G and H, it's $7.10 for the call; and $8.89 for the put. And for part I, it matches with answer $8.89.
rcoffman
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The difference lies in the source of the normal distribution. If you look it up the values from the table in the book, then Call=6.87 and Put=8.66. If you get the values from Excel, then Call=7.10 and Put=8.89. As long as you are consistent with where you pull the values from across put and call calculations, put-call parity will hold.
nikola
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Formula on page 536, 10th edition: d1=log()/sigma*sqrt(t) is incorrectly displayed because the order of precedence gives multiplication by sqrt(t) rather than division. It should be like d1=log()/(sigma*sqrt(t)).

[NEAS: Yes: "sigma * sqrt(t)" is the denominator of this ratio.]


NEAS
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nikola - 1/3/2012 9:35:17 AM

Formula on page 536, 10th edition: d1=log()/sigma*sqrt(t) is incorrectly displayed because the order of precedence gives multiplication by sqrt(t) rather than division. It should be like d1=log()/(sigma*sqrt(t)).

[NEAS: Yes: "sigma * sqrt(t)" is the denominator of this ratio.]


 

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