You read an article in the November 26th, 1997 Wall Street Journal detailing how Alexander Haagen Properties, Inc., will buy out the namesake family's stake in the company. The contract calls for the family to receive either the market price or $17 per share (whichever is greater) on May 24, 1999. If you were trying to value the contract, what sorts of things would be important and why?

Your aunt shows you an article from the October 1997 issue of Bloomberg Personal describing how an investor can synthetically create a convertible bond.  The article suggests that investing in T-bills and buying call options is equivalent to owning convertible debt.  You aunt, for whatever reason, likes to invest in convertible debt.  Her problem is that there is company that she's interested in, but it doesn't have any convertible debt outstanding.  It does, however, have listed options.  She wants to know whether the analysis in the article is correct.  What do you say?

Your boss reads an article in the November 6th, 1997 Wall Street Journal claiming that stock options are a destabilizing force in the stock market and helped cause a recent market decline.  The article says that options guide prices away from underlying intrinsic value, and options accentuate volatile movements in either direction.  She asks you what you think?

Your boss reads an article in the February 28th, 1997 WSJ detailing the government's intention to tax a certain type of preferred stock issuance that had previously been tax-free.  The ruling is to be retroactive. The article notes that, "Most of the agreements had 'tax-call' provisions, meaning that the issuer would have to buy back the securities from investors in the event of a government crackdown."  Your boss shows you the article and tells you that one of his friends said that the term "tax-call" was a misnomer, but he doesn't understand what his friend meant.  He asks you to explain.  What do you say?

Your boss says to you, "If we make our upcoming debt issue convertible into our company's stock, we could save as much as 150 basis points.  I think we should include the conversion feature in order to lower the cost of the debt."  What do you think of his suggestion?

Several years ago Cadilac offered an enginge that would automatically change the number of cylinders that we're firing depending on the demands being put on the engine.  For example, during acceleration all eight of the engine's cylinders would be firing, but during idle or while maintaining a constant speed the engine would "shut off" up to four of the cylinders, leaving only 4 still firing. Cadilac offered the engine as an option that the consumer had to pay extra for.  In deciding whether it made sense to buy this option, what sorts of things should consumers have considered?

You're interested in buying a new car.  You've narrowed your choice down to two models.  The cars are essentially the same except for how power is delivered to the wheels.  The first model has two-wheel drive standard, but you can pay extra for "optional on-demand four-wheel drive." The second model comes with four-wheel drive standard (with no ability to switch to two-wheel drive) or you can pay extra for an option that would allow you to switch to 2-wheel drive.  What sorts of things are you going to consider when you think about the two options packages?

In the WSJ on February 12th, 1997, you read about President Clinton's intention to force investors to use the average cost method when calculating capital gains "instead of choosing among several."  One of your friends, whose looking over your shoulder, says that he thinks the change will make things simpler and he doesn't see how it will hurt.  What do you say?  If it will "hurt", what determines the extent to which it will hurt?

[CWS]  A call option on bond prices is a put on interest rates. Discuss.

[CWS]  California (and other states) have passed laws that restrict the exercise of termination provisions in franchise agreements.  Your boss says that she thinks this is a good idea -- firms have an incentive to terminate profitable franchisees and replace them with company-owned outlets.  She asks what you think?

[CSW]  Your boss shows you an ad from Norstar Bank advertising their Norstar Rising Rate Certificate of Deposit.  "It allows you to change your certificate rate to the current rate once during the first six months of the CD term for this 15 month CD."  She asks how we might price a competing product?  What do you say?

[CSW]  The option pricing model is wrong -- it does not include beta.  Comment.

[CSW]  A small Texas oil company is issuing a bond with an interesting kicker -- at the maturity date, you can either accept the face value in cash, or the cash value of 50 barrels of oil.  What variables should be important in valuing this bond?

[CSW]  A car wash is normally $2.50, but on Tuesdays they are $2.00.  My wife, however, gave me a book of coupons she bought 5 for $10.00.  If I am getting my car washed next Tuesday, should I pay cash or give them a coupon?

[CSW]  Your boss hands you an article fro the New York Times that says:

The Gannett Company, for instance, recently sold $100 of 10-year notes -- what Wall Street calls a "plain vanilla" security.  But the notes also had an option kicker that gave the purchaser of the notes the right to redeem them at the end of five years, or to accept another note for the remainder of the term at a much higher yield than was received in the first five years.

She asks you what should be important in valuing these notes issued by the Gannett Company?  He indicates that the article also says, "Options are sold to the buyer of a corporate security, giving the issuer lower interest costs."  She says that this sounds like a great way to lower our cost of borrowing.  She's thinking of recommending it to the board.  She wants you opinion.