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Describe the effect on a call option price

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Reference no: EM132803335

A. Define each of the following terms:

a. Option; call option; put option

b. Exercise value; strike price

c. Black-Scholes Option Pricing Model

B. Why do options sell at prices higher than their exercise values?

C. Describe the effect on a call option's price caused by an increase in each of the following factors:

(1) stock price

(2) exercise price

(3) time to expiration,

(4) riskfree rate

(5) variance of stock return.

A. Define each of the following terms:

a. Weighted average cost of capital, WACC; after-tax cost of debt, rd(1 _ T)

b. Cost of preferred stock, rps; cost of common equity or cost of common stock, rs

c. Target capital structure

d. Flotation cost, F; cost of new external common equity, re

B. In what sense is the WACC an average cost? A marginal cost?

Reference no: EM132803335

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