Fundamentals of Corporate Finance Third edition Chapter 24 Options Brealey Myers Marcus ndamentals of Corporate Finan Brealey Myers Marcus slides by Matthew will IrwinMcGraw-Hill CThe McGraw-Hill Companies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 24- 1 Irwin/McGraw-Hill Chapter 24 Fundamentals of Corporate Finance Third Edition Options Brealey Myers Marcus slides by Matthew Will Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc.,2001
24-2 Topics Covered sCalls and puts oWhat Determines Option Values SPotting the option Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 24- 2 Irwin/McGraw-Hill Topics Covered Calls and Puts What Determines Option Values Spotting the Option
24-3 Option Terminology Call Option Right to buy an asset at a specified exercise price on or before the exercise date Put option Right to sell an asset at a specified exercise price on or before the exercise date Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 24- 3 Irwin/McGraw-Hill Option Terminology Put Option Right to sell an asset at a specified exercise price on or before the exercise date. Call Option Right to buy an asset at a specified exercise price on or before the exercise date
24-4 Option Obligations Buyer Seller Call option Right to buy asset obligation to sell asset Put option Right to sell asset obligation to buy asset Irwin/McGraw-Hill CThe McGraw-Hill Companies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 24- 4 Irwin/McGraw-Hill Option Obligations Buyer Seller Call option Right to buy asset Obligation to sell asset Put option Right to sell asset Obligation to buy asset
24-5 Option value o The value of an option at expiration is a function of the stock price and the exercise price Example -Option values given a exercise price of $30 Stock Price $20 25 30 35 40 45 Call value 00051525 Put value 1050000 Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 24- 5 Irwin/McGraw-Hill Option Value The value of an option at expiration is a function of the stock price and the exercise price. Example - Option values given a exercise price of $30 Put Value 10 5 0 0 0 0 Call Value 0 0 0 5 15 25 Stock Price $20 25 30 35 40 45