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Question
What is the difference in the expected returns on equity when using a Black-Scholes formula versus a traditional weighted average formula? Assume rA = 0.12, rf = 0.06, asset value = $170, equity value = $45, debt to value ratio = 0.55, and delta = 0.6500.A) 1.00%
B) 1.20%
C) 1.40%
D) 1.60%
Answer
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Related questions
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Assume the following: LN(S) and LN(Q) have a correlation coefficient of -0.65, S(0) = 55, Q(0) = 60, r = 0.04, σs = 0.22 σQ = 0.15, and dividends = 0. Using formula 20.39, what is the price of a claim that pays Q/?
A) $8.16
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D) $11.16
Q:
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