Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 5, Problem 1P
Summary Introduction
To determine: The exercise value of call option and time value of option.
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A call option on the stock of Bedrock Boulders has a market price of $7.The stock sells for $30 a share, and the option has a strike price of $25 ashare. What is the exercise value of the call option? What is the option’stime value?
A call option on Rosenstein Corporation stock has a market price of $7. Thestock 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 call option on Barry Enterprises stock has a market price of $12. The stock sells for $23 a share, and the option has an exercise price of $15.50. What is the option's time value? Round your answer to the nearest cent.
Chapter 5 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 5 - Define each of the following terms:
Option; call...Ch. 5 - Prob. 2QCh. 5 - Prob. 3QCh. 5 - Prob. 1PCh. 5 - The exercise price on one of Flanagan Companys...Ch. 5 - Black-Scholes Model
Assume that you have been...Ch. 5 - Put–Call Parity
The current price of a stock is...Ch. 5 - Prob. 5PCh. 5 - Binomial Model The current price of a stock is 20....Ch. 5 - Prob. 7P
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- In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). (1) What assumptions underlie the OPM? (2) Write out the three equations that constitute the model. (3) According to the OPM, what is the value of a call option with the following characteristics? Stock price = 27.00 Strike price = 25.00 Time to expiration = 6 months = 0.5 years Risk-free rate = 6.0% Stock return standard deviation = 0.49arrow_forwardPut–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?arrow_forwardSuppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,680, and the index is now at 1,720. What will happen when you exercise the option?arrow_forward
- You have written a call option on Walmart common stock. The option has an exercise price of $81, and Walmart’s stock currently trades at $79. The option premium is $1.60 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $77 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price increases to $87 at expiration of the option and the option holder exercises the option?arrow_forwardA one-year call option on a stock with strike price of $90 costs $6 and a one-year put option on the same stock with strike price of $90 costs $7. Suppose that a trader buys one call option and one put option. a. What is the breakeven stock price, above which the trader makes a profit? b. What is the breakeven stock price, below which the trader makes a profit?arrow_forwardIn an efficient market, a one-year call option on stock S with K = $25 is traded at$7.06, the current stock price S0 = $28.5, the expected market return is 7.5% and the T-Bill yield is 4%. You are about to purchase a one-year put option on the same stock with K = $26, someone offered it to you at a price of $3.6. Should you buy it?arrow_forward
- An investor buys a put option at a price of 24.15 dollars with an exercise price of $190.00 at what stock price will be invested break even on the purchase of the put?arrow_forwardYou buy a put option on IBM common stock. The option has an exercise price of $136 and IBM’s stock currently trades at $140. The option premium is $5 per contract.a. What is your net profit on the option if IBM’s stock price increases to $150 at expiration of the option and you exercise the option? b. How much of the option premium is due to intrinsic value versus time value?c. What is your net profit if IBM’s stock price decreases to $130?d. Draw the payout diagram at maturity on a short put option position, option premium = $2, and the same exercise price... (Please give the full solution I will upvote)arrow_forwardWhat is the value of a call option if the underlying stock price is $81, the strike price is $90, the underlying stock volatility is 50 percent, and the risk-free rate is 3 percent? Assume the option has 60 days to expiration.arrow_forward
- A non – dividend – paying stock with a current price of $52, the strike price is $50, the risk free interest rate is 12% pa, the volatility is 30% pa, and the time to maturity is 3 months? a) Calculate the price of a call option on this stock b) What is the price of a put option price on this stock? c) Is the put-call parity of these options hold?arrow_forwardMs. Co currently own a put option on Stock A with a strike price of P45. If the current price of Stock A is P40, then what is the in-the-money amount of the option?arrow_forward
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