Chapter 18, Problem 1P

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Chapter
Section

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

# OPTIONS A call option on Rosenstein Corporation stock has a market price of $7. The stock sells for$31 a share, and the option has an exercise price of $25 a share. a. What is the exercise value of the call option? b. What is the premium on the option? a. Summary Introduction To determine: The exercise value of the call option. Introduction: Option is a contract to purchase a financial asset from one party and sell it to another party on an agreed price for a future date. There are two types of options, which are as follows: • An option that buys an asset called call option • An option that sells an asset called put option Explanation Given information: R Company has a call option stock with a market price of$7 and the company has sold for $31 per share. The option has an exercise price of$25 per share.

The formula to compute the exercise value of call option is as follows:

ExerciseĀ valueĀ ofĀ callĀ option=CurrentĀ stockĀ priceāExerciseĀ price

Compute the exercis

b.

Summary Introduction

To determine: The premium on the option.

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