BUS218 Solutions Chapter 14

BUS218 Solutions Chapter 14

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BUS218 Solutions Chapter 14 1. Intrinsic value is $15 ($600 – $585) and time value is $54 ($69 – $15). 2. Fundamental value   ($31.11   $35)   100    $389 The entire price of the option is a time premium. 3. Fundamental value   ($45   $36)   100   $900 Time premium   $1,050   $900   $150 4. Fundamental value   ($27.50   $36)   100    $850 The entire price of the option is a time premium. Time premium   $.85   100   $855 5. A call option purchased for $600 with a $60 strike price can later be sold (or exercised)  when the underlying stock has a $75 price; given this, it will generate the following: Profit Value at expiration Purchase price [($75 $60) 100] $600 $1,500 $600 $900 [($75 $60) 100] $600 HPR $600 $900 150% $600 Annualized rate of return 150% (12/6) 300% 6. Cost of ETF puts   1,000   $1.20   $1,200 Value at expiration   $24   $20   $4/share 
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