Chapter_22

# Chapter_22 - Chapter 22 Problems 1-38 Input boxes in tan...

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Chapter 22 Problems 1-38 Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green NOTE: Some functions used in these spreadsheets may require that the "Analysis ToolPak" or "Solver Add-in" be installed in Excel. To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak and "Solver Add-In."

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Chapter 22 Question 1 Input Area: T-bills 5.5% Share price \$55 Price won't drop below: \$50 a. Exercise price on a call: \$45 b. Exercise price on a call: \$35 c. Exercise price on a put: \$40 Output Area: a. Call value \$12.35 Intrinsic value \$10.00 b. Call value \$21.82 Intrinsic value \$20.00 c. Put value \$- There is no possiblity that the put will finish in the money. Intrinsic value = \$0.

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Chapter 22 Question 2 Input Area: Calls Option Strike Price Expiration Volume Last RWJ 83 80 Mar 230 2.80 83 80 Apr 170 6.00 83 80 Jul 139 8.05 83 80 Oct 60 10.20 Output Area: a. The calls are in the money. The intinsic value is b. The puts are out of the money. The intrinsic value is c. The Mar call and the Oct put are mispriced. The call is mispriced becau than its intrinsic value. If the option expired today, the arbitrage would exercise it and pay \$80 for a share of stock, and sell the stock for \$83. The Oct put is mispriced because it sells for less than the July put. To sell the July put for \$3.90 and buy the October put for \$3.65, for a cash The exposure of the short position is completely covered by the long po put, with a positive cash inflow today.
Puts Volume Last 160 0.80 127 1.40 43 3.90 11 3.65 \$3.00 \$0.00 use it is selling for less be to buy the call for \$2.80, . Riskless profit of \$0.20. take advantage of this, h inflow of \$0.25. The osition in the October

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Chapter 22 Question 3 Input Area: Calls Option Strike Price Expiration Volume Last Macrosoft 114 110 Feb 85 7.60 114 110 Mar 61 8.80 114 110 May 22 10.25 114 110 Aug 3 13.05 a. Contracts bought 10 Feb call \$110 Aug put \$110 b. Share price \$140 Share price \$125 c. Contracts bought 10 Share price \$104 d. Contracts sold 10 Share price \$103 Share price \$132 Output Area: a. Price \$7,600.00 b. \$30,000 \$15,000 c. Initial cost \$4,700 Maximum gain \$105,300 Terminal value \$6,000 Net gain \$1,300 d. Option payoff \$(7.00) Net profit \$(2,300) Option payoff \$- S T S T
Net profit \$4,700 Break-even \$105.30 For terminal stock prices above \$105.30 , the writer of net profit.

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Puts Volume Last 40 0.60 22 1.55 11 2.85 3 4.70
f the put option makes a

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Chapter 22 Question 4 Input Area: Low stock price \$75 High stock price \$95 T-bills 6% a. Current price \$80 Exercise price \$70 b. Exercise price \$90 Output Area: a. \$13.96 b. \$2.31 C 0 C 0
Chapter 22 Question 5 Input Area: Low stock price \$60 High stock price \$80 T-bills 5% a. Current price \$70 Exercise price \$45 b. Exercise price \$70 Output Area: a. \$27.14 b. \$6.43 C 0 C 0

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Chapter 22 Question 6 Input Area: Current stock price \$61 Call option \$4.12 Exercise price \$65 Expiration (months) 3 Risk-free rate 2.6% Output Area: Put price \$7.70
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## This note was uploaded on 12/14/2010 for the course FINC 311 taught by Professor Stanley,t during the Fall '08 term at Winthrop.

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Chapter_22 - Chapter 22 Problems 1-38 Input boxes in tan...

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