Question

You have written a call option on Walmart common stock. The option has an exercise price of $80, and Walmart’s stock currently trades at $78. The option premium is $1.55 per contract.

a. How much of the option premium is due to intrinsic value versus time value?
b. What is your net profit if Walmart’s stock price decreases to $76 and stays there until the option expires?
c. What is your net profit on the option if Walmart’s stock price increases to $86 at expiration of the option and the option holder exercises the option?

(For all requirements, negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins Data Review - 2x A = = = V General File Home Insert Page Layout Formulas * Cut Calibri 11 A E Copy Paste BI Format Painter U D- DA Clipboard Font Wrap Text Merge & Center - $ % , :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Number Cells GH161 GA GB GCGDGE GF GG GH GIG GK GL GM 159 160 161 162 163 164 165 166 WALMART AS YOU ARE A WRITER OF A CALL OPTION OPTION PREMIUM DUE TO INTRINSIC VALUE = INTRINSIC VALUE = CURRENT PRICE - EXERCISE PRICE = 78-80 = -2 (SO IT ZERO) 167 1.55 OPTION PREMIUM DUE TO TIME VALUE = TIME VALUE = OPTION PREMIUM - INTRINSIC VALUE = 1.55 - 0 = 1.55 IF PRICE DECREASE TO 73, HOLDER OF CALL OPTION WILL NOT EXERCISE THE OPTION SO YOUR PROFIT = CALL OPTION PREMIUM RECEIVED = 1.55 168 169 170 171 172 173 174 175 176 177 IF PRICE INCREASES TO 83, HOLDER OF CALL OPTION WILL EXERCISE THE CALL SO YOUR PROFIT = 80-86 +1.55 = -4.45 H O FCFARM, MSI,confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST I CF CASH FLOW STATW ferences PREF AND DIV POLICY BOU 130% Red O 04:48 D E 9 * * TO ENG 27-11-2019