Sally Jameson

FIN 512 (Spring 2012) incident Write-up #4 Name: Yiyang Li Net_ID: yli119 project: February 20, 2012 Case: Sally Jameson Compensation Case Sallys Compensation Its the sequence for snow-melting, its the season for c areer interviews, and its also the season, hopefully, for start unemployment reckon. Sally Jameson, an MBA student have from the ivory tower HBS, is hotshot of the lucky graduates and got a short letter from Telstar. Additionally, the generous employer offers her a peculiar(prenominal) compensation package she could choose both cash of $5,000 or 3,000 special picks that allow her to buy as many as 3000 shares of Telstars stocks for $35.00 at her 5th anniversary employment. straightaway is whitethorn 27, 1992, we have a list of quotations of Short- and Long-terminus scrub Options of Telstar stocks, a list of historical price and volatility of Telstar plebeian express since Jan, 82, and a list of T-bill security yields. Now we are hither to help her touch a choice. I. B-S Model for option pricing Today is the final day for Sally to make a choice, we relies on the famous Black-Scholes Model to price the options in the compensation. Before pricing, we call for to know the volatility and the continuous heighten pertain rate. For interest rate, we regard the 5 years T-bill coalition yields as the risk-free rate and assume Sally and other(a) investors of Telstar are risk-neutral. 1+5*BEY5yr=exp5r, where BEY5yr is the annualized Treasury Bills bond akin yield and r is the continuous increase interest rate we want to derive, which is 5.2627%. Secondly, since historical volatility could non perfectly take a hop the scenarios in the future, we utilise options prices that could reflect the investors expected volatility (due to the in effect(p) market hypothesis). Moreover, as the volatility derived from long-term call options are more particular than that derived from short-term, we would use the 3 long term options with different strikes prices of $12! .5, $17.5 and $20.00. S| K| sigma| d1| d2|...If you want to get a full essay, baseball club it on our website: BestEssayCheap.com

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