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kay

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Active 11 years ago
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  • December 11, 2013 at 8:03 am #152332
    mysterykay
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    BSOP only discounts the exercise price with e^-rt as the discount factor so Pa was supposed to be the discounted cash flows..at least that’s what I think.

    December 11, 2013 at 2:25 am #152301
    mysterykay
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    This is what I thought about the paper:
    Q1. The option was a put option and pa was equivalent to the PVs of cashflows from years 3 to 5. I used the formula:
    P=PeN(-d2)e^-rt _PaN(-d1) Coz I didnt have much time to calculate the call option first for the other formula. The risk free rate was the rate of treasury bills, that was, I think 4% ?

    Q2. The tricky part was recognising that it was an investment and not borrowing, therefore buy futures (for futures contract) and buy call options. I think it was an unbelievable question coz I was expecting something tougher than that. Hopefully I wasn’t mistaken about any of the information given *fingers crossed*

    Q3. Jeez! I forgot the synergy benefits so am completely hopeless on this one but am hoping I’ll get some marks for the weighted asset betas and the equity betas.
    Overall the paper was easy.

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