Gasworks, Inc., has been approached to sell up to 2.8 million gallons of gasoline in three months at a price of $2.70 per gallon. Gasoline is currently selling on the wholesale market at $2.40 per gallon and has a standard deviation of 62 percent. If the risk-free rate is 7 percent per year, what is the value of this option? Use the two- state model to value the real option. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Value of contract

a. Use the Black-Scholes formula to find the value of the following call option. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) i. Time to expiration 1 year. ii. Standard deviation 40% per year. iii. Exercise price $84. iv. Stock price $84. v. Interest rate 4% (effective annual yield). b. Now recalculate the value of this call option, but use the following parameter values. Each change should be considered independently. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) i. Time to expiration 2 years. ii. Standard deviation 50% per year. iii. Exercise price $94. iv. Stock price $94. v. Interest rate 6%. c. In which case did increasing the value of the input not increase your calculation of option value? a. Call option value b-i. Call option value when time to expiration is 2 years. b-ii. Call option value when standard deviation is 50% per year. b-iii. Call option value when exercise price is $60. b-iv. b-v. C…

Ivy's Ice Cream is looking at an opportunity that would require an investment of $900,000 today.  The investment will provide cash flows of $250,000 in the first year, $400,000 in the second year, and $600,000 in the third year.   If the interest rate is 8%, what is the NPV of this investment opportunity?  Should Ivy's Ice Cream move forward with this investment based on the NPV? (Round your answer to the nearest whole dollar.)

On May 25, 2018 you purchased an option which will allow you to sell a commercial building on August 14, 2022 for $42 million. Your current estimate of the value of the commercial building is $38 million.  The annual volatility for the change in the commercial building’s value is 57% and the risk-free rate is 6%. What type of option is this? Calculate the value of the option to sell the commercial building. Please show work in excel and equations/questions used.

Melbourne Capital Ltd considers selling European call options on ANZ Bank Ltd for $1.50 per option. The current market price is $17.70 on 28th September 2020, the exercise price is $20, and the maturity of each call option is 6 months. (i) Under what circumstances does the investor make a profit?    (ii) Under what circumstances will the option be exercised?   (iii) How many call options should the investor sell to raise a total capital of $1,260,000?

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The price of a European CALL option is $8.00 and a European PUT is $10.00. The expiration date is 1 year and has an exercise price k=$60.00, the share price of the underlying asset is quoted today at $60.00. The risk-free rate is 10% per year. Propose a strategy that generates arbitrage and a profit.

A UK oil trader, Teresa, is considering purchasing oil on the spot market for speculative purposes. The current spot price is $18 a barrel. However, she expects the price to decline to $16 a barrel in one month's time. If she bought on the spot market today, she would hold the oil for one month at a cost of £0.002 a barrel for the month, after which she could sell the oil on the spot market. The current US dollar exchange rate is $1.50/£. If she expects the exchange rate to be $1.30/£1 in one month's time, what is her expected gain/loss on the oil deal? A. £0.306 gain per barrel   B. £0.027 gain per barrel   C. £1.540 loss per barrel   D. £6.202 loss per barrel

As a major maker/manufacturer of premium leather hand luggage, you are concerned that leather prices may move beyond their current level of $30/pound when you are ready for production. Therefore, you enter into the appropriate option contract. The strike price is fixed at the current spot price at an options price of $5.00 per option. What is the position you take and your profit or loss, if eight months later, leather is selling at the spot market for $38.50? Olong futures, $7.50 Oshort futures, -$4.00 Olong call, $3.50 Olong call, -$5.00 O long futures, $5.00