I assume you were happy in arriving at the figure of -0.6886 for D1 (the workings are at the end of the lecture notes as well).

We look up 0.69 in the tables (we can only look up for 2 decimal places, so 0.6886 becomes 0.69). So do this you look along the 0.6 row and as you move through the columns it gives the figure for 0.60, 0.61, 0.62 and so on. We want 0.69 and so it is the 0.6 row and the 0.09 column, and the figure from the tables is 0.2549.

Because D1 is negative, we subtract then 0.2549 away from 0.5.
(Had it been positive, as D2 is, then we would add 0.5). This rule is given at the bottom of the tables.

You should be able to follow the rest of the answer at the back of the Lecture Notes.

(How did you manage to sort out the first four examples, but not example 5? :-))

John i have this question. it concerns calculatind d1 if a questions is given n i calculate d1 and a figure say 1.2812 and i then round it to 1.28 and another candidate calculates his and round it to 1.3. these two answers will give different values for N(d1) which will lead to a different value for a call option. will the two of us have all the marks. I am asking because when calculating the figure for natual log of Pa/Pe due to rounding candidates will have different answers
thank you

Firstly most if not all of the marks are for proving you understand what is happening rather than for the final answer.
Secondly, when rounding you should really round to the number of decimals needed for the tables, so why round to 1.3 when the tables allow you to look up 1.28

I am sorry, but you can only download the course notes – the lectures can only be watched online.
It is the only way that we can keep this website free of charge.

If it was a call option exercisable immediately, then the option gives you the right to buy a share at a fixed price.

So, for example, if the current share price is $4.00 and you could buy an option giving you the right to buy the share at an exercise price of $3.70, then you could buy the share for $3.70 and immediately sell it for $0.30.
Nobody is going to give you that right free! You would be prepared to pay $0.30 for the option. Then you could use it and buy a share for $3.70. You have then spent $4.00 in total and you own a share worth $4.00

(But of course, that is only if the option were exercisable immediately. In practice the option will be the right to buy a share at a fixed price on a future date, and to get the value of that we need to use all the formulae.)

This is invaluable! I have a scientific calculator and i had no idea how all this buttons worked ln and e* now you have educated me on the standard normal distribution table! whew u saved me a head ache. for a while there when i saw the formulae i imagened it must be some enginering formulae forgotten on P4 paper by error!

It means this paper should have more calculations and less writing , how then are we expected to mix the two?! I mean just one question on options is enough to give one a head ache. God have mercy on us!

But Thank God for Opentuition iam confident iam finalising and passing this June 2013 exams. Watch this space i will update u all. John you are our guardian angel!

Example 4. When the lecturer was doing the call option formula, he made a mistake and put t=.4 when it should be .25… so answer is actually 4cents and not 5cents…. whew

Isn’t it possible to incorporate video speed controls within the player? It would really help since some may never have enough time to watch at the normal speed. I would request you to consider takling to the company providing the streaming and update if possible.

It seems the tutor made an error in the lecture (example 5 around 53:01) where he says the ‘t’ in e^-rt is 0.4 instead of 0.25 (3months).

But if you look at page 144 in the OT notes, the answer to example 5 in chapter 13 (share options and option pricing) shows the correct figure, t = 0.25.

Brilliant lecture, I’ve picked up a lot more from here than I did in class! Thank you!

sogan0 says

Hi Tutor

Please give me an example on how to use the distribution table i got lost in Example 5 on the column 0.09 why that column?

John Moffat says

I assume you were happy in arriving at the figure of -0.6886 for D1 (the workings are at the end of the lecture notes as well).

We look up 0.69 in the tables (we can only look up for 2 decimal places, so 0.6886 becomes 0.69). So do this you look along the 0.6 row and as you move through the columns it gives the figure for 0.60, 0.61, 0.62 and so on. We want 0.69 and so it is the 0.6 row and the 0.09 column, and the figure from the tables is 0.2549.

Because D1 is negative, we subtract then 0.2549 away from 0.5.

(Had it been positive, as D2 is, then we would add 0.5). This rule is given at the bottom of the tables.

You should be able to follow the rest of the answer at the back of the Lecture Notes.

(How did you manage to sort out the first four examples, but not example 5? :-))

sogan0 says

i only started practicing exmaple 5 then i got lost. Many thanx for your advice

questforknowledge says

John i have this question. it concerns calculatind d1 if a questions is given n i calculate d1 and a figure say 1.2812 and i then round it to 1.28 and another candidate calculates his and round it to 1.3. these two answers will give different values for N(d1) which will lead to a different value for a call option. will the two of us have all the marks. I am asking because when calculating the figure for natual log of Pa/Pe due to rounding candidates will have different answers

thank you

John Moffat says

Two things.

Firstly most if not all of the marks are for proving you understand what is happening rather than for the final answer.

Secondly, when rounding you should really round to the number of decimals needed for the tables, so why round to 1.3 when the tables allow you to look up 1.28

mustafabilalqari says

How can I Have Lectures of Business Valuation

John Moffat says

There are no lectures yet on business valuation.

ALI says

How can i download this?or this is only for watching?

John Moffat says

I am sorry, but you can only download the course notes – the lectures can only be watched online.

It is the only way that we can keep this website free of charge.

ALI says

Can u provide me solution of paper strategic financial management 3.7 of december 2006 of ACCA………?

John Moffat says

I don’t think that I have it any longer – I will check later.

Do remember that the examiner (and the syllabus) has changed twice since then.

ALI says

okk,,,..

NEENA says

sir in example you taken t as 0.4 in formula of call option and put option i guess thats a mistake it should be 0.25 right?

NEENA says

i mean example 5.

John Moffat says

I have watched my lecture again, and it seems that I have taken ‘t’ as 0.25 correctly (it is ‘s’ that is 0.4).

You can of course check the answer at the back of the Course Notes. I think it is correct.

Lidia says

Dear John, it seems when calculating ‘-rt’ in example 6 (52,48 minute of the lecture and so on) you’ve multiplied 0,1 (r) by 0,4 instead of 0,25 (t)….

John Moffat says

Ooops – you are correct.

Sorry

sakura69 says

Thanks John!

ruth12 says

These are very well explained lectures and are a great help. Thank you sir and Open Tuition.

toobaalvi says

I have a very basic ques.. But its really confusing me. why the value of option is share price – excercise price?

John Moffat says

If it was a call option exercisable immediately, then the option gives you the right to buy a share at a fixed price.

So, for example, if the current share price is $4.00 and you could buy an option giving you the right to buy the share at an exercise price of $3.70, then you could buy the share for $3.70 and immediately sell it for $0.30.

Nobody is going to give you that right free! You would be prepared to pay $0.30 for the option. Then you could use it and buy a share for $3.70. You have then spent $4.00 in total and you own a share worth $4.00

(But of course, that is only if the option were exercisable immediately. In practice the option will be the right to buy a share at a fixed price on a future date, and to get the value of that we need to use all the formulae.)

tinashe says

thank u!

tinashe says

thank you

tinashe says

John you are God sent! what will we do without you and opentuition?!

Thank you so much for teaching me how to get more value using a scientific calculator!

tinashe says

This is invaluable! I have a scientific calculator and i had no idea how all this buttons worked ln and e* now you have educated me on the standard normal distribution table! whew u saved me a head ache. for a while there when i saw the formulae i imagened it must be some enginering formulae forgotten on P4 paper by error!

It means this paper should have more calculations and less writing , how then are we expected to mix the two?! I mean just one question on options is enough to give one a head ache. God have mercy on us!

But Thank God for Opentuition iam confident iam finalising and passing this June 2013 exams. Watch this space i will update u all. John you are our guardian angel!

tiffany2012 says

Example 4. When the lecturer was doing the call option formula, he made a mistake and put t=.4 when it should be .25… so answer is actually 4cents and not 5cents…. whew

bmparadzi says

Thank you very much for an invaluable lecture! You are brilliant, concise and straight to the point! Really appreciate the assistance.

coolsara says

invaluable ?

louis06111 says

You do help clarify all these complicated issues.

Thank you for all ur effort.

Benefit a lot

dladla says

please verify that on the last question,the “T” you used is annual and not adjusted for 3 months as it should be 0.25 and not 0.4.

John Moffat says

@dladla, You are correct – sorry. I used the correct T for calculating d1 and d2, but then made a mistake in the equation for c.

You can see the correct answer at the back of the Course Notes.

diana2010 says

gr8 lectures

thank you

diana2010 says

I have failed to view the lectures.

they are not running. Please help

admin says

Try another browser

pwyc says

thanks, i know how to use the formulaes ald…

mathiot says

Excellent lectures

Rejoyce says

Wonderful lecture. I picked up a great deal! Keep it up

kerry says

great explanation here!

rajad2010 says

@admin

Isn’t it possible to incorporate video speed controls within the player? It would really help since some may never have enough time to watch at the normal speed. I would request you to consider takling to the company providing the streaming and update if possible.

Thank you.

nausheenmoeen says

pls fix the techinal problem of this lecture i am reling on it its not running after 15 mins.

nausheenmoeen says

the lecture is not running after 15 mins

tosin says

my calculator isgivig wrong answer on the In(pa/pe) maybe im getting it wrong. whos is there to help me???

viviankyc82 says

thanks a lot…i didnt look at the answer in the notes just checked my answer against the video 😀 thanks a lot

John Moffat says

Thanks for your comments.

You are correct that it is e^-0.025, but that is what is in the answer to example 5 in the notes. I think the answer is correct.

viviankyc82 says

Also, thanks everything for putting these valuable lectures online, is even better and more thorough than Kaplan!! 😀

viviankyc82 says

i think the example 5 is wrong when working the call & put option, my e^-rt is actually e^-0.1*0.25; i.e. e^-0.025 or have i missed something? thanks

freshmint says

It seems the tutor made an error in the lecture (example 5 around 53:01) where he says the ‘t’ in e^-rt is 0.4 instead of 0.25 (3months).

But if you look at page 144 in the OT notes, the answer to example 5 in chapter 13 (share options and option pricing) shows the correct figure, t = 0.25.

Brilliant lecture, I’ve picked up a lot more from here than I did in class! Thank you!