Use the Black-Scholes Model to Calculate the Theoretical Value of a DBA

question 42

Essay

Use the Black-Scholes model to calculate the theoretical value of a DBA December 45 call option. Assume that the risk free rate is 6 percent, the stock has a variance of 36 percent, there are 91 days until expiration of the contract, and DBA stock is currently selling at $50 in the market.

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Definitions:

GAAP

Generally Accepted Accounting Principles; a framework of accounting standards, principles, and procedures.

Lease Capitalization

The process of recording a lease as an asset and a corresponding liability on the balance sheet, reflecting the assets' use and obligation to make lease payments.

Bargain Purchase Option

An option in a lease agreement that allows the lessee to purchase the leased asset at a price significantly below its fair market value.

Capital Lease

A lease agreement that is classified as a purchase by the lessee for accounting purposes because it meets certain criteria, such as transfer of ownership by the end of the lease term.