Finance Questions

Archive for June, 2009

Question: Please explain in detail exactly how the Black-Scholes-Merton formula works with pricing of a option?

I am a finance major with a test on it. I have to use this formula that says

P = Ke^rt N(-d2) – Se ^yT N(-d1)

What is this?

S= Stock price
y= stock dividend yield
k= strike price
r= risk free rate
T= time remaining until expiration

Anyone that can explain this to me, i wuold be so gratefull

Answer: This is the Black-Scholes option pricing formula that is used to price European-style options.

N(d2) and N(d1) are taken from the normal probability distribution tables. You are missing two more formulas there. That is, there’s a separate formula for d1 and d2. See here for them:http://en.wikipedia.org/wiki/Black-Scholes

Once you have all the variables, just plug them in and get your option price.

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Question: 16 year old looking for a career in business/finance need advice?

I really want to get a job as a loan officer once I graduate from High School. What are some other career choices that would go great for me since I like dealing with money, business, sales, commisions?

So far I have looked into stock broker, real estate agent, loan officer, investment officer. They all provide the potiental for 5 figures to 7 figures income.

what are some other choices that will go good for me?

Answer: Go to college, you wont be making anything over $30k if you dont get your butt in school with at least a bachelors in business, more than likely you will need a masters in business administration, accounting or finance.

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Question: 0% finance?

I am wondering why all these american car companies offer 0% for 60 months, and Finance Companies for Honda does not offer the same? I know Honda and Acura Toyota are much better cars, but shouldn’t we be able to get that financing even with a foreign car?

Answer: The 0% finance is a fiction. If you check the fine print, you will discover that you have a choice of 0% finance, or a cash rebate. If you do not take the cash rebate, the amount of the rebate is basically a prepaid Finance Charge. The only way to tell for sure what is going on is to get all the details of each deal and compare them with a financial calculator such as an HP-12C.

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Question: Repossession of a Car in NJ?

I recently had my car repossessed by American Honda Finance Corporation and was informed that I must pay the full amount of the car in order to have it returned to me. The company is adamant that NJ has a no-reinstatement law and that eventhough I am willing to pay the past due amount and all costs of repossession, they are saying can not do this (pay the past due amount and any fees associated w/repossession). Is this true and is it worth it to seek legal counsel. I was in contact with the repo company to negotiate a payment and they keep telling me I have to go through the Finance Company that I can’t deal with them.—-I reposted b/c I wanted to provide more clarity. I am looking for advice. Thanks for the help.

Answer: They are correct. NJ is a no-reinstatement state. Not worth counsel. Cut your losses and buy another car…if you can.

Happy 50th Anniversary American Honda!

Question: When is a rebate better than 0% financing for a car?

Answer: Always. The rebate you give up is paying the interest in advance. If you pay off early you don’t recover that interest. If you miss a payment at 0% you get to pay the interest all over agin when your rate shoots up.

U3875 – 2005 Honda Civic SE Finance from 0% at Harmony Honda