EMU is in a bidding war with WMU to acquire Ypsi. • Ypsi stocks are currently trading at $65/share • WMU has already made an offer of $75 · The intrinsic value of Ypsi to EMU is $95 What bidding option is reasonable? O Nothing--current bid of $75 is already too high compared to the market price of $65 Offer at least $95 to defeat WMU O Bid between $65 and $75--not to go over your head and loose shareholder values Bid between $75 and $95--it still is a good value!

Honeywell does not pay a dividend and its stock has a volatility of 28% and a current stock price of $67 per share. The risk-free interest is 4%. Determine the Black-Scholes value of a one-year, at-the-money call option on Honeywell's stock. (You must show me how you do this without an Excel-based option pricing model. That is, you must show your work with the formulas and Z-Tables. The value will likely be different than if you just plug into an Excel-based BSOPM). The call option's value is $. (Round to the nearest cent.)

5 Construct payoff tables or payoff diagrams on expiration to show what position in IBM puts, calls and/or underlying stock best expresses the investor's objectives described below. Assume IBM currently sells for $100. Make appropriate assumptions about the strike prices of options in each case. Ignore the cost of options.   a/ An investor wants the position to be at least worth $75. Further the investor believes that the IBM stock price will go up but will at most reach $140.