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Unformatted text preview: Chapter 15 - Put and Call Options SOLUTIONS MANUAL CHAPTER 15 PUT AND CALL OPTIONS PROBLEMS Exercise (strike) price 1. A stock has an exercise (strike) price of $40. a. If the stock price goes to $41.50, is the exchange likely to add a new strike price? b. If the stock price goes to $42.75 is the exchange likely to add a new strike price? 15-1. a) No. For stocks over $25, the normal interval is $5, with a new strike price added at the halfway point or $42.50 (between $40 and $45). b) Yes, the stock price has equaled or exceeded the halfway point of $42.50 Option trading prices 2. Look at the option quotes in Table 15–2 on page 368. a. What is the closing price of the common stock of SINGLE Systems? b. What is the highest strike price listed? c. What is the price of a December 20 call option? d. What is the price of a January 22.50 put option? 15-2. a) $18.93 b) 25.00 c) 1.10 d) 4.20 15-1 Chapter 15 - Put and Call Options Option trading terms 3. Assume a stock is selling for $66.75 with options available at 60, 65, and 70 strike prices. The 65 call option price is at $4.50. a. What is the intrinsic value of the 65 call? b. Is the 65 call in the money? c. What is the speculative premium on the 65 call option? d. What percentage does the speculative premium represent of common stock price? e. Are the 60 and 70 call options in the money? 15-3. a) $66.75 − $65 = $1.75 b) Yes $66.75>$65 c) Total premium - Intrinsic = Speculative (price) value premium $4.50 $1.75 $2.75- = d) $2.75/$66.75 =4.12% e) The 60 call option is because the market price is above the strike price. The 70 is not. Option trading terms 4. Assume a stock is selling for $48.50 with options available at 40, 50, and 60 strike prices. The 50 call option price is at 2.75. a. What is the intrinsic value of the 50 call? b. Is the 50 call in the money? c. What is the speculative premium on the 50 call option? d. What percentage of common stock price does the speculative premium represent? e. Are the 40 and 60 call options in the money? 15-4. a) $48.50−$50 = −$1.50 or zero b) No $48.50 is less than the strike price $50 c) Total premium - Intrinsic = Speculative (price) value premium $2.75 ( $1.50) $4.25- - = d) $4.25/$48.50 = 8.76% e) The 40 call option is because the market price is above the strike price. The 60 is not....
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- Fall '06
- Strike price