Unformatted text preview: hin the next
year, so the expected theoretical value of a warrant over the next year is $8. The
expiration date of the warrant is 1 year from the present.
a. If Mr. Baldwin purchases the stock, holds it for 1 year, and then sells it for
$32, what is his total gain? (Ignore brokerage fees and taxes.)
b. If Mr. Baldwin purchases the warrants and converts them to common stock
in 1 year, what is his total gain if the market price of common shares is actually $32? (Ignore brokerage fees and taxes.)
c. Repeat parts a and b, assuming that the market price of the stock in 1 year is
(1) $30 and (2) $28.
d. Discuss the two alternatives and the tradeoffs associated with them. LG6 16–19 Options profits and losses For each of the 100-share options shown in the following table, use the underlying stock price at expiration and other information
to determine the amount of profit or loss an investor would have had, ignoring
brokerage fees. Option Call $200 $ 50 $55 B Call 350 42 45 C Put 500 60 50 D Put 300 35 40 E 16–20 Cost
of option A LG6 Striking
price per share Underlying stock
price per share
at expiration Type
of option Call 450 28 26 Call option Carol Krebs is considering buying 100 shares of Sooner Products,
Inc., at $62 per share. Because she has read that the firm will probably soon
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This document was uploaded on 01/19/2014.
- Fall '13