University of Technology

School of Business Administration

Corporate Finance

Tutorial #6- Derivatives - Chapter 18

1. Define each of the following terms

   • Option

   • Call option

   • Put option

   • Strike/Exercise Price

   • Exercise Value

   • Long-Term Equity Anticipation Securities (LEAPS)

   • Risk-less Hedge

   • Black-Scholes Option Pricing Model

   • Forward Contract

   • Futures Contract

   • Swap

   • Structured Notes

   • Inverse Floaters

Questions

2. 18 - 1

3. 18 - 5

Problems

4. 18 - 1

5. 18 - 2

6. 18 - 3

7. 18 - 4

8. Given the values in the table below, compute the value of the option using the Black-Scholes Option Pricing Model:

9. Given the values in the table below, compute the value of the option using the Black-Scholes Option Pricing Model:

10. Using the data from question 9 above, perform the following sensitivity analysis:

    1. While holding the other variables constant, increase each variable by 10% and find the value of the option in each case (using the Black-Scholes Option Pricing Model).

    2. Comment on the effect on the original option value (i.e. the result from question 9) that each change in part a. above brought about.

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