MGFC10H3 Chapter 23: Chapter 23 Notes
Document Summary
Chapter 23 options and corporate finance: basic concepts notes. 23. 1 options an option is a contact giving its owner the right to buy or sell an asset at a fixed price on or before a given date some important definitions related to options are: exercising the option. The act of buying or selling the underlying asset via the option contract: strike or exercise price. The fixed price in the option contract at which the holder can buy or sell the underlying asset: expiration date. After this date, the option is dead: american and european options. An american option may be exercised at any time up to and including the expiration date. Price of underlying stock + price of put = price of call + present value of exercise price. S = current stock price r = continuously compounded risk-free rate of return (annualized) 1: e = exercise price of call.
