Chapter 24

Problems 3,8,11,20,22
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
Chapter 24
Question 3
Input Area:
Current stock price
Call option
Exercise price
Expiration (months)
Risk-free rate
Output Area:
Put price - $
Chapter 24
Question 8
Input Area:
Current stock price
Exercise price
Expiration (months)
Risk-free rate
Standard deviation
Output Area:
d
1
#DIV/0!
d
2
#DIV/0!
N(d
1
) #DIV/0!
N(d
2
) #DIV/0!
Call #DIV/0!
Put #DIV/0!
Chapter 24
Question 11
Input Area:
Current selling price
Price % increase
Standard deviation
Option to buy
Expiration (months)
Risk-free rate
Output Area:
The 'stock' price is $0
and the exercise price is
$0
d
1
#DIV/0!
d
2
#DIV/0!
N(d
1
) #DIV/0!
N(d
2
) #DIV/0!
Call #DIV/0!
Chapter 24
Question 20
Input Area:
Face value
Market value
Maturity (years)
Coupon rate
Standard deviation
Risk-free rate
Output Area:
d
1
#DIV/0!
d
2
#DIV/0!
N(d
1
) #DIV/0!
N(d
2
) #DIV/0!
Equity value #DIV/0!
Debt value #DIV/0!
Return on debt #DIV/0!
Chapter 24
Question 22
Input Area:
Face value
Market value
Maturity (years)
Coupon rate
Standard deviation
Risk-free rate
NPV
Output Area:
a. d
1
#DIV/0!
d
2
#DIV/0!
N(d
1
) #DIV/0!
N(d
2
) #DIV/0!
Equity value #DIV/0!
b. Debt value #DIV/0!
c. Rd #DIV/0!
d. d
1
#DIV/0!
d
2
#DIV/0!
N(d
1
) #DIV/0!
N(d
2
) #DIV/0!
Equity value #DIV/0!
e. Debt value #DIV/0!
Rd #DIV/0!
When the firm accepts the new project,
part of the NPV accrues to bondholders.
This increases the present value of the
bond, thus reducing the return on the bond.
Additionally, the new project makes the
firm safer in the sense it increases the
value of assets, thus increasing the
probability the call will end in the money
and the bondholders will receive their
payment.