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

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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:
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

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

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online