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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