OPTION WORKSHEET: LONG TERM OPTIONS

VALUING A LONG TERM OPTION - WITH DIVIDEND ADJUSTMENT

This program calculates the value of a long term option (> 1 year)
adjusting for dividends using the expected dividend
yield on the current value of the asset.

Assumptions
1. All the assumptions underlying the Black-Scholes model apply
2. The dividend yield over the lifetime of the option is known and a constant.

The user has to input the following variables

1. Current market value of the underlying asset
2. Variance in the ln(value) of the underlying asset
3. Strike price of the option
4. Riskless interest rate that corresponds to the life of the option
5. Time to expiration on the option
6. Expected dividend yield on the underlying asset.
 OPTION WORKSHEET: LONG TERM OPTIONS

Inputs relating the underlying asset

Enter the current market value of the underlying asset =$10.97 (in currency)

Entet the annualized standard deviation in ln(value) of asset

30% (in %)

Enter the current annualized dividends on the asset $0.19 (in currency)
This will result in a dividend yield of 1.70%
Do you want to change this dividend yield for the life of theNo
option? (Yes or No)
If yes, enter the new dividend yield for the life of the option = (in %)

Inputs relating to the option

Enter the strike price on the option = $15.91 (in currency)

Enter the time to expiration on the option (in years)

3 = (in years)

General Inputs
Enter the riskless rate that corresponds to the option lifetime
5.00%= (in %)
 OPTION WORKSHEET: LONG TERM OPTIONS

VALUING A LONG TERM OPTION/WARRANT

Stock Price= $10.97 T.Bond rate= 5.00%
Strike Price= $15.91 Variance= 0.09
Expiration (in years) = 3 Annualized dividend yield= 1.70%

d1 = -0.27
N(d1) = 0.4

d2 = -0.78
N(d2) = 0.22

Value of the call = $1.16 Value of the put = $4.43