I bought a put option on Microsoft stock with a strike price of $300 expiring on January 10, 2022. The option premium is $20 and the current stock price of Microsoft is $275. Assume that each option is for 1 Microsoft share. Under this option contract, I have the to a share of Microsoft for a price of on or before January 10, 2022.

I bought a put option on Microsoft stock with a strike price of $300 expiring on January 10, 2022. The option premium is $20 and the current stock price of Microsoft is $275. Assume that each option is for 1 Microsoft share. Under this option contract, I have the to a share of Microsoft for a price of on or before January 10, 2022.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Warren Co. purchased a put option on Echo common shares on January 7, 2020, for $360. The put option is for 400 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2020. The following data are available with respect to the put option. Date Market Price of Echo Shares Time Value of Put Option March 31, 2020 $80 per share $200 June 30, 2020 82 per share 90 July 6, 2020 77 per share 25 Instructions Prepare the journal entries for Warren Co. for the following dates. a. January 7, 2020—Investment in put option on Echo shares. b. March 31, 2020—Warren prepares financial statements. c. June 30, 2020—Warren prepares financial statements. d. July 6, 2020—Warren settles the put option on the Echo shares.
On January 2, 2020, Ayayai Company purchases a call option for $310 on Merchant common stock. The call option gives Ayayai the option to buy 1,090 shares of Merchant at a strike price of $49 per share. The market price of a Merchant share is $49 on January 2, 2020 (the intrinsic value is therefore $0). On March 31, 2020, the market price for Merchant stock is $53 per share, and the time value of the option is $200. Prepare the journal entry to record the purchase of the call option on January 2, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 2, 2020 enter an account title to record the transaction on January 2, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction on January 2, 2020 enter a debit…
IBM stock is currently trading at $100 per share. An investor purchases one Put option contra on IBM with a $100 strike and at a price of $3.00 per contract. Each options contract represer an interest in 100 underlying shares of stock. For each of the following scenarios determine i 7. the option is in the money, at the money, or out of the money. Show your work. A. When the option expires, IBM is trading at $98 B. When the option expires, IBM is trading at $90 C. When the option expires, IBM is trading at $97
Hua Xin Services offered an incentive stock option plan to its employees. On January 1, 2024, options were granted for 90,000 $1 par common shares. The exercise price equals the $5 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2027, and expire December 31, 2028. Each option has a fair value of $1 based on an option pricing model. What is the total compensation cost for this plan?
Assume we are in July, 2023. In July of 2023, the share prices of company B are $80 per share. You believe they should be $30 per share, and are thus overvalued. December 2023 put options on a strike price of $60 per share are currently valued at $5. Each put contract is based on 100 shares. a.) What is your net dollar profit or loss as a holder of the put contract (based ona contract size of 100 shares) if we arrive at expiry in December and you are wrong and Company B shares are selling for $100?
Assume we are in July, 2023. In July of 2023, the share prices of company B are $80 per share. You believe they should be $30 per share, and are thus overvalued. December 2023 put options on a strike price of $60 per share are currently valued at $5. Each put contract is based on 100 shares. a.) What is your net dollar profit or loss as a holder of the put contract (based ona contract size of 100 shares) if we arrive at expiry in December and you are wrong and Company B shares are selling for $100? (Show your working in full)
In January 2021 you purchased 2,000 shares of BZA Ltd for $30.00 per share. Concerned that the market will turn bearish, you decide to buy 20 put options on the company’s shares with each contract written on 100 shares at an exercise (or strike) price of $30.00 expiring in July 2021 for a premium of $1.00 per share. -If at expiration the company’s share price is $28.00 calculate the total profit or loss on your hedged position
Under its executive stock option plan, Sorensen Corporation granted options on January 1, 2024, that permit executives to purchase 31 million of the company's $1 par common shares within the next seven years, but not before December 31, 2026 (the vesting date). The exercise price is the market price of the shares on the date of grant, $19 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. The options expired in 2030 without being exercised. By what amount will Sorensen's shareholders' equity be increased as a result of having granted the options?
On October 15, 2022, East Company approved a share option plan for key executives. On January 1, 2023, 200,000 share options were granted exercisable for 200,000 ordinary shares at P10 par value. The options are exercisable between January 1, 2026 and December 31, 2028, at 80% of the quoted market price on January 1, 2023 which was P15. The fair value of the 200,000 options estimated by an appropriate option pricing model is P6 per option. Twenty thousand options were forfeited when an executive resigned in 2024. All other options were exercised on July 1, 2026 when the share price jumped unexpectedly to P20.What amount should East Company credit to share premium upon exercise of options in 2026? 1,440,000 1,560,000 2,160,000 1,600,000
On January 1, 2022, Rosewood Corp. purchased a put option on shares of ICM stock. Terms of the contract were as follows: Number of shares: 100 Strike price: $200 per share Expiration date: May 31, 2022 Total cost of the option contract: $80 Seller of the option contract: First Investment Bank On January 1, 2022, ICM stock was trading at $200 per share.The following additional information is known: On March 31, 2022, the price of ICM stock was $220 per share. A market appraisal indicated that the time value of the option contract was $60. On May 10, 2022, the price of ICM stock was $185 per share. A market appraisal indicated that the time value of the option contract was $50. On this date, Rosewood settled the option contract. What is the dollar value of put option that Rosewood Corp. would have included in its March 2022 quarterly financial statements?
On January 1, 2021, Adams-Meneke Corporation granted 20 million incentive stock options to division managers, each permitting holders to purchase one share of the company’s $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $48 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. Management’s policy is to estimate forfeitures. No forfeitures are anticipated. Ignore taxes. Required: 1. Determine the total compensation cost pertaining to the options on January 1, 2021.2. Prepare the appropriate journal entry to record compensation expense on December 31, 2021.3. Unexpected turnover during 2022 caused an estimate of the forfeiture of 5% of the stock options. Prepare the appropriate journal entry(s) on December 31, 2022 and 2023 in response to the new estimate.
Ivanhoe Corp. purchased a put option on Mykia common shares on July 7, 2020, for $468. The put option is for 350 shares, and the strike price is $50. The option expires on January 31, 2021. The following data are available with respect to the put option: Fair Value Market Price Date of Option of Mykia Shares Sept. 30, 2020 $230 $58 per share Dec. 31, 2020 $97 $60 per share Jan. 31, 2021 $0 $64 per share Prepare the journal entries for Miller Co. for the following dates. (a) July 7, 2020—Investment in call option on Wade shares. (b) September 30, 2020—Miller prepares financial statements. (c) December 31, 2020—Miller prepares financial statements. (d) January 4, 2021—Miller settles the call option on the Wade shares

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