Boeing plans to give American airlines an option to buy wide-body 9W9 aircraft at the...
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Boeing plans to give American airlines an option to buy wide-body 9W9 aircraft at the end of three years for $200 million, and the price of 9W9 aircraft today is $180 million. The life of the aircraft is 20 years. Boeing's business consists of 50% in commercial aircraft and 50% in defense projects. The volitility of Boeing stock is 3% per month. Airbus is 100% in the commercial aircraft business. The volitility of Airbus stock is 5% per month. The three year risk-free rate is 3% per year, and the twenty-year rate is 5% per year.
What type of option is this for Boeing?
A Long put
B Long call
C Short put
D Short call
What is the underlying asset value for the option?
A $180 million
B $190 million
C $200 million
D $300 million
What is the exercise price for the option?
A $500 million
B $190 million
C $390 million
D $200 million
What is the time to maturity for the option?
A 3
B 10
C 5
D 20
What is the annual volitility to use for the option (%/Yr.)?
A 10.4%
B 17.4%
C. 5.0%
D 3.0%
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