Brian Lin
D01278742
Week 3 Homework
Chapter 8 Questions
Problem 81
A call option on the stock of Bedrock Boulders has a market price of $7.
The stock sells for
$30 a share, and the option has a strike price of $25 a share.
What is the exercise value of
the call option?
What is the option’s time value?
Stock Price
$30
(a)
Strike Price
$25
(b)
Price of Option
$7
(c)
Exercise Value of Option
$5
(d) = (a) – (b)
Time Value of Option
$2
(c) – (d)
Problem 82
The exercise price on one of Flanagan Company’s options is $15, its exercise value is $22,
and its time value is $5.
What are the option’s market value and the price of the stock?
Exercise Value of Option
$22
Exercise Price of Option
$15
Time Value of Option
$5
Option’s Market Value
$27
(Exercise Value of Option + Time Value of Option)
Price of the Stock
$37
(Price of Stock – Exercise Value of Option
= Exercise Price of Option)
Chapter 15 Questions
Problem 158
The Rivoli Company has no debt outstanding, and its financial position is given by the
following data:
Assets (book = market)
= $3M
EBIT
= $500K
Cost of Equity, r
s
= 10%
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '10
 ANTHONYCRINITI
 Derivative, Strike price, exercise value

Click to edit the document details