ch.14 solution

# ch.14 solution - 1 a The value of the call is the stock...

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1. a. The value of the call is the stock price minus the present value of the exercise price, so: C 0 = \$55 – [\$45/1.062] = \$12.63 The intrinsic value is the amount by which the stock price exceeds the exercise price of the call, so the intrinsic value is \$10. b. The value of the call is the stock price minus the present value of the exercise price, so: C 0 = \$55 – [\$35/1.062] = \$22.04 The intrinsic value is the amount by which the stock price exceeds the exercise price of the call, so the intrinsic value is \$20. c. The value of the put option is \$0 since there is no possibility that the put will finish in the money. The intrinsic value is also \$0. 3. a. Each contract is for 100 shares, so the total cost is: Cost = 10(100 shares/contract)(\$8.05) Cost = \$8,050 b. If the stock price at expiration is \$130, the payoff is: Payoff = 10(100)(\$130 – 110) Payoff = \$20,000 If the stock price at expiration is \$118, the payoff is: Payoff = 10(100)(\$118 – 110) Payoff = \$8,000 c. Remembering that each contract is for 100 shares of stock, the cost is:

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## This note was uploaded on 02/23/2010 for the course FIN 81341 taught by Professor Yang during the Spring '10 term at CSU San Bernardino.

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ch.14 solution - 1 a The value of the call is the stock...

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