Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 25, Problem 9QP
Black–Scholes and Asset Value [LO4] You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,375,000. Over the past five years, the price of land in the area has increased 7 percent per year, with an annual standard deviation of 30 percent. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $1,600,000. The risk-free rate of interest is 5 percent per year, compounded continuously. How much should you charge for the option?
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12. You are considering the purchase of a tract of timber land today as an investment. Last years timber
harvest that just sold produced a net income of $150,000 a year. You expect Timber prices to increase on
average by 3% a year into the foreseeable future. The current asking price of the land is $2,200,000.
If you required rate of return is 8%, should you buy the land?
D1
Value Do (1 +g)
k-g
k-g
Should you buy if after additional consideration, you decide the investment is riskier than
originally thought and raise your required rate of return to 12%?
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k-g
D1
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Problem # 45: In the center of a big city, the rent for a plot of land has a rental price of $600,000 per
year.
a.
What is the minimum purchase price the owner will accept for this land if the prevailing
interest rate is at 10% and assuming that it will remain at this rate most of the time?
b. If the interest rate is expected to be lower at 5%, how much is the purchase price?
what is the maximum amount you would be willing to pay for an investment opportunity that you expect to bring you $1,100 in one year, 2,420 in 2 years and $3000 per year for the following 5 years given that you require a return of 10% on investment with similar level of risks?
1. 12,398
2. 17,000
3. 14,372
4. 18,520
5. 11,372
Chapter 25 Solutions
Fundamentals of Corporate Finance
Ch. 25.1 - Prob. 25.1ACQCh. 25.1 - Prob. 25.1BCQCh. 25.2 - Prob. 25.2ACQCh. 25.2 - Prob. 25.2BCQCh. 25.3 - Prob. 25.3ACQCh. 25.3 - Prob. 25.3BCQCh. 25.4 - Why do we say that the equity in a leveraged firm...Ch. 25.4 - Prob. 25.4BCQCh. 25.5 - Prob. 25.5ACQCh. 25.5 - Prob. 25.5BCQ
Ch. 25 - Prob. 25.1CTFCh. 25 - Prob. 25.3CTFCh. 25 - Prob. 1CRCTCh. 25 - Prob. 2CRCTCh. 25 - Prob. 3CRCTCh. 25 - Prob. 4CRCTCh. 25 - Prob. 5CRCTCh. 25 - Prob. 6CRCTCh. 25 - Prob. 7CRCTCh. 25 - Prob. 8CRCTCh. 25 - Prob. 9CRCTCh. 25 - Prob. 10CRCTCh. 25 - Prob. 1QPCh. 25 - Prob. 2QPCh. 25 - PutCall Parity [LO1] A stock is currently selling...Ch. 25 - PutCall Parity [LO1] A put option that expires in...Ch. 25 - PutCall Parity [LO1] A put option and a call...Ch. 25 - PutCall Parity [LO1] A put option and call option...Ch. 25 - BlackScholes [LO2] What are the prices of a call...Ch. 25 - Delta [LO2] What are the deltas of a call option...Ch. 25 - BlackScholes and Asset Value [LO4] You own a lot...Ch. 25 - BlackScholes and Asset Value [L04] In the previous...Ch. 25 - Time Value of Options [LO2] You are given the...Ch. 25 - PutCall Parity [LO1] A call option with an...Ch. 25 - BlackScholes [LO2] A call option matures in six...Ch. 25 - BlackScholes [LO2] A call option has an exercise...Ch. 25 - BlackScholes [LO2] A stock is currently priced at...Ch. 25 - Prob. 16QPCh. 25 - Equity as an Option and NPV [LO4] Suppose the firm...Ch. 25 - Equity as an Option [LO4] Frostbite Thermalwear...Ch. 25 - Prob. 19QPCh. 25 - Prob. 20QPCh. 25 - Prob. 21QPCh. 25 - Prob. 22QPCh. 25 - BlackScholes and Dividends [LO2] In addition to...Ch. 25 - PutCall Parity and Dividends [LO1] The putcall...Ch. 25 - Put Delta [LO2] In the chapter, we noted that the...Ch. 25 - BlackScholes Put Pricing Model [LO2] Use the...Ch. 25 - BlackScholes [LO2] A stock is currently priced at...Ch. 25 - Delta [LO2] You purchase one call and sell one put...Ch. 25 - Prob. 1MCh. 25 - Prob. 2MCh. 25 - Prob. 3MCh. 25 - Prob. 4MCh. 25 - Prob. 5MCh. 25 - Prob. 6M
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