FINA-339 Lecture 4: scan 10
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Exxaroâs managers are ambitious and wish to expand their range of activities. They have produced a report for the head office detailing five projects requiring large initial investments. After reading the report the head office say they have a policy allowing unit managers to select investment projects without interference from their office. However, they do set a limit on the amount spent in any one period. In the case of Exxaro this limit is to be R110 000 at Time 0 for these projects, which if accepted will commence immediately. The five projects are mutually exclusive (that is, taking one does not exclude the possibility of taking on another), each one can only be undertaken once and they are all divisible.
Point in time (yearly) | |||||
0 | 1 | 2 | 3 | 4 | |
(Râ000) | (Râ000) | (Râ000) | (Râ000) | (Râ000) | |
Project 1 | -35 | 0 | 60 | 0 | 0 |
Project 2 | -50 | 30 | 30 | 30 | 0 |
Project 3 | -20 | 10 | 10 | 10 | 10 |
Project 4 | -30 | 15 | 15 | 15 | 15 |
Project 5 | -60 | 70 | 0 | 0 | 0 |
None of the projects lasts more than four years and cash flows are confined to within the four-year horizon.
Assume:
ï· The cost of capital is 10 per cent
ï· No inflation
ï· No tax
ï· All cash flows occur on anniversary dates
5.1. What is the optimal allocation of the R110 000 and the resulting net present value? (15)
5.2. How would your answer above (5.1) change if the cost of capital is decreased by 2 per cent? (5)
5.3. Distinguish between âsoftâ and âhardâ capital rationing and explain why these forms of rationing occur. (5)
The scenario: Assume that today is May 3, 2017. You are asked to price hypothetical August 2017 options on Facebook (FB) stock. (Presently, only May, June, July, and September options exist.) The risk-free rate is 1.0% per year. Daily prices in Table 2 below are from Yahoo! Finance. (There are n days of prices, generating n-1 returns.)
Create an input range containing the following components:
Current stock price
Exercise price
Annualized stock volatility
Time to expiration
Risk-free rate
Create an interactive spreadsheet to price a call option using the Black-Scholes option-pricing model (BSOPM). Calculate the price of a FB August 150 call, and place your answer in cell G4. Make sure itâs interactive. Will rate if answer is correct.
Date | FB Closing Price |
5/2/2017 | 152.78 |
5/1/2017 | 152.46 |
4/28/2017 | 150.25 |
4/27/2017 | 147.70 |
4/26/2017 | 146.56 |
4/25/2017 | 146.49 |
4/24/2017 | 145.47 |
4/21/2017 | 143.68 |
4/20/2017 | 143.80 |
4/19/2017 | 142.27 |
4/18/2017 | 140.96 |
4/17/2017 | 141.42 |
4/13/2017 | 139.39 |
4/12/2017 | 139.58 |
4/11/2017 | 139.92 |
4/10/2017 | 141.04 |
4/7/2017 | 140.78 |
4/6/2017 | 141.17 |
4/5/2017 | 141.85 |
4/4/2017 | 141.73 |
4/3/2017 | 142.28 |
3/31/2017 | 142.05 |
3/30/2017 | 142.41 |
3/29/2017 | 142.65 |
3/28/2017 | 141.76 |
3/27/2017 | 140.32 |
3/24/2017 | 140.34 |
3/23/2017 | 139.53 |
3/22/2017 | 139.59 |
3/21/2017 | 138.51 |
3/20/2017 | 139.94 |
3/17/2017 | 139.84 |
3/16/2017 | 139.99 |
3/15/2017 | 139.72 |
3/14/2017 | 139.32 |
3/13/2017 | 139.60 |
3/10/2017 | 138.79 |
3/9/2017 | 138.24 |
3/8/2017 | 137.72 |
3/7/2017 | 137.30 |
3/6/2017 | 137.42 |
3/3/2017 | 137.17 |
3/2/2017 | 136.76 |
3/1/2017 | 137.42 |
2/28/2017 | 135.54 |
2/27/2017 | 136.41 |
2/24/2017 | 135.44 |
2/23/2017 | 135.36 |
2/22/2017 | 136.12 |
2/21/2017 | 133.72 |
2/17/2017 | 133.53 |
2/16/2017 | 133.84 |
2/15/2017 | 133.44 |
2/14/2017 | 133.85 |
2/13/2017 | 134.05 |
2/10/2017 | 134.19 |
2/9/2017 | 134.14 |
2/8/2017 | 134.20 |
2/7/2017 | 131.84 |
2/6/2017 | 132.06 |
2/3/2017 | 130.98 |
2/2/2017 | 130.84 |
2/1/2017 | 133.23 |
1/31/2017 | 130.32 |
1/30/2017 | 130.98 |
1/27/2017 | 132.18 |
1/26/2017 | 132.78 |
1/25/2017 | 131.48 |
1/24/2017 | 129.37 |
1/23/2017 | 128.93 |
1/20/2017 | 127.04 |
1/19/2017 | 127.55 |
1/18/2017 | 127.92 |
1/17/2017 | 127.87 |
1/13/2017 | 128.34 |
1/12/2017 | 126.62 |
1/11/2017 | 126.09 |
1/10/2017 | 124.35 |
1/9/2017 | 124.90 |
1/6/2017 | 123.41 |
1/5/2017 | 120.67 |
1/4/2017 | 118.69 |
1/3/2017 | 116.86 |
12/30/2016 | 115.05 |
12/29/2016 | 116.35 |
12/28/2016 | 116.92 |
12/27/2016 | 118.01 |
12/23/2016 | 117.27 |
12/22/2016 | 117.40 |
12/21/2016 | 119.04 |
12/20/2016 | 119.09 |
12/19/2016 | 119.24 |
12/16/2016 | 119.87 |
12/15/2016 | 120.57 |
12/14/2016 | 120.21 |
12/13/2016 | 120.31 |
12/12/2016 | 117.77 |
12/9/2016 | 119.68 |
12/8/2016 | 118.91 |
12/7/2016 | 117.95 |
12/6/2016 | 117.31 |
12/5/2016 | 117.43 |
12/2/2016 | 115.40 |
12/1/2016 | 115.10 |
11/30/2016 | 118.42 |
11/29/2016 | 120.87 |
11/28/2016 | 120.41 |
11/25/2016 | 120.38 |
11/23/2016 | 120.84 |
11/22/2016 | 121.47 |
11/21/2016 | 121.77 |
11/18/2016 | 117.02 |
11/17/2016 | 117.79 |
11/16/2016 | 116.34 |
11/15/2016 | 117.20 |
11/14/2016 | 115.08 |
11/11/2016 | 119.02 |
11/10/2016 | 120.80 |
11/9/2016 | 123.18 |
11/8/2016 | 124.22 |
11/7/2016 | 122.15 |
11/4/2016 | 120.75 |
11/3/2016 | 120.00 |
11/2/2016 | 127.17 |
Primary Prospectus Benchmark Name | Total Ret Annlzd 5 Yr (%) |
Russell 2000 Growth TR USD | 12.40 |
Russell 2000 TR USD | 12.62 |
Russell 2000 Value TR USD | 12.78 |
S&P 500 Growth TR USD | 13.94 |
S&P 500 TR USD | 13.60 |
S&P 500 Value TR USD | 13.11 |