Question

The common shares of Twitter, Inc. (TWTR) recently traded on the NYSE for $22.30 per share. You have employee stock options to purchase 1,000 TWTR shares for $21.7 per share. The options explre in three years. Assume that the annualized volatility of TWTR stock Is 89.2 percent and that the Interest rate is 2.9 percent. (Assume the options are European options that may only be exercised at the maturity date.) a. Is this option a call or a put? Call Put b. Using an option pricing calculator such as the one at erlerl.com/blackscholes, estimate the value of your TWTR options. (Round your answer to nearest whole number.) Answer is complete but not entirely correct. Value of your TWTR options 1 3 c. What is the estimated value of the options if their maturity Is six months Instead of three years? (Round your answer to nearest whole number.) Answer is complete but not entirely correct. Value of the options S 6 d. What is the estimated value of the options if their maturity is three years, but TWTR's volatility is 63.8 percent? (Round your answer to nearest whole number.) Answer is complete but not entirely correct. Value of the options S 9

Answer 1

Call Option 22.30 21.70 6 Type of Option Stock Price (So) Exercise (Strike) Price (K) Time to Maturity (in years) (t) Annual Risk Free Rate (r) Annualized Volatility (o) Option Price Tim 1 3.00 9 2.90% 89.20% 13.05 10 $ 11 12 13 Additional Calculation Parameters In(So/K) (r+oʻ/2) 14 lovt d1 d2 N(dı) N(dz) N(-dı) IN(-d₂) 0.027 1.280 1.545 0.846 (0.699) 0.801 0.242 0.199 0.758 0.91668

$ $ Type of Option Stock Price (So) Exercise (Strike) Price (K) Time to Maturity (in years) (t) Annual Risk Free Rate (r) Annualized Volatility (0) Option Price Call Option 22.30 21.70 0.50 2.90% 89.20% 5.87 $ 0.027 Additional Calculation Parameters In(So/K) (r+oʻ/2) lovt 0.213 0.631 0.382 (0.249) d, 18 0.649 d N(da) N(dz) IN(-d) IN(-02) 0.402 0.351 0.598 0.98560

Type of Option Stock Price (So) Exercise (Strike) Price (K) Time to Maturity (in years) (t) Annual Risk Free Rate (r) Annualized Volatility (o) Option Price Call Option 22.30 21.70 3.00 2.90% 63.80% 10.09 10 $ 11 12 13 0.027 14 Additional Calculation Parameters In(Sc/K) (r+o²/2) ovt di d2 N(d) N(dz) N(-da) IN(-d₂) 0.698 1.105 0.656 (0.449) 0.744 18 19 20 0.327 0.256 21 0.673 0.91668 22 Lett

Formulas used:-

ln(S0/K)=IFERROR(LN(C5/C6),"na")
(r+σ2/2)t=(C8+(C9^2)/2)*C7
σ√t=C9*SQRT(C7)
d1=IFERROR((C13+C14)/C15,"na")
d2=IFERROR(C16-C15,"na")
N(d1)=IFERROR(NORM.S.DIST(C16,TRUE),"na")
N(d2)=IFERROR(NORM.S.DIST(C17,TRUE),"na")
N(-d1)=IFERROR(NORM.S.DIST(-C16,TRUE),"na")
N(-d2)=IFERROR(NORM.S.DIST(-C17,TRUE),"na")
e-rt =EXP(-C8*C7)

Option Price=IFERROR(IF(C4='--> Additional Info'!A3,C5*C18-C6*C22*C19,IF(C4='--> Additional Info'!A4,C6*C22*C21-C5*C20,"na")),"na")

I hope my efforts will be fruitful to you...?