- This topic has 6 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
I would like to know that when using the BSOp model to value a company , the value of Pe is calculated as
300×1.08^-5(power of negative 5)
OR
300×1.08^5 (power of positive 5)Thank you..
There is no specific formula for calculating Pe. How it is arrived at depends on the information in the question.
You will have to refer to a specific past exam question for me to give you a proper answer.Because as in June 10 AgroChem Co they are using ^-5 what is the criteria for using positive and negative any indication or some information which would be given or indicated for us to know to use which one ?
Thank You.
Calculating the exercise price in Aggrochem was not a Black Scholes formula (the only Black Scholes formulae are those on the formula sheet).
The question said to calculate it as the present value of a zero-coupon bond with an identical yield and term to maturity of the current bond.
The current bond is a 5 year bond, and that is the reason for using ^-5.
1.08^-5 is the same as 1/((1.08)^5), which is discounting for 5 years at 8% p.a..metva: Well it has been answered again now 🙂
It saves him having to search for it in the other forum.That i know using the negative and positive.
But i dont get it why do they do ^5 positive here then.
Please explain amd check this out from the Kaplan Text book.
You typed -5 in your original question, and I have explained correctly what was done in Aggrochem!!!
The page you have linked is asking something completely different in that part.
For some reason (you have not sent the whole question) they are calculating the redemption value of a zero coupon bond. Since it is paying no interest and investors require 5%, then to get the redemption value we need to add on 5% interest for 5 years – i.e. multiply by (1.05)^5You cannot compare this question with Aggrochem.
- You must be logged in to reply to this topic.