You took a long position in a call option on DBS’s share. The option premium is $7 per contract and the option has an exercise price of $25. DBS’s share is currently trading at $30. (a) Calculate how much of the option premium is due to intrinsic value and how much is due to time value (b) Calculate the net profit on the option if DBS’s share price increases to $40 and you exercise the option. (c) Calculate net profit if DBS’ share price decreases to $20.

You took a long position in a call option on DBS’s share. The option premium is $7 per contract and the option has an exercise price of $25. DBS’s share is currently trading at $30. (a) Calculate how much of the option premium is due to intrinsic value and how much is due to time value (b) Calculate the net profit on the option if DBS’s share price increases to $40 and you exercise the option. (c) Calculate net profit if DBS’ share price decreases to $20.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 2P

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