Chapter 18, Problem 2P

### 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 The exercise price on one of Boudreaux Company's call options is $14, its exercise value is$20, and its premium is $5. What are the option's market value and the stock's current price? Summary Introduction To determine: The current price of the stock and market value of the 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. Explanation Given information: B Company has a call option stock with an exercise price of$14 and its exercise value is $20. The premium is$5.

The formula to compute the market price of option using premium formula is as follows:

Premium  =Market price of optionExercise value

The formula to compute the current stock price of option using exercise value formula is as follows:

Exercise value =Current stock priceExercise price

Compute the current stock price of option:

Exercise value =Current stock priceExercise price$20=Current stock price$14

### Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

#### The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started