Homework Answers
At this time, LC's stock price is 50 and if you exercised the option, your payoff would be =MAX(50-40,0)=10. Therefore, if the option is in-the-money, you should exercise the option
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4. Option pricing model - Binomial approach Learn Corp. (Ticker: LC), an education technology company, is...
Learn Corp. (Ticker: LC), an education technology company, is considered to be one of the least...
Learn Corp. (Ticker: LC), an education technology company, is considered to be one of the least risky companies in the education sector. Investors trade call options for Leam Corp., whose stock is currently trading at $50.00. Suppose you are interested in buying a call option with a strike price of $40.00 that expires in 6 months. (Assume that you get the option for free!) Based on speculations and probability analysis, you compute and collect the following information for your price...
5. Option pricing - Single-period binomial approach A Aa The value of an option can be...
5. Option pricing - Single-period binomial approach A Aa The value of an option can be calculated by using a step-by-step approach in the case of single periods or by using sophisticated formulas that can be easily created through a spreadsheet. In the real world, two possible outcomes for a stock price in six months is an assumption. The stock markets are volatile, and stocks move up and down based on market- and firm-specific factors. Consider the case of Canada...
5. Option pricing - Single-period binomial approach The value of an option can be calculated by...
5. Option pricing - Single-period binomial approach The value of an option can be calculated by using a step-by-step approach in the case of single periods or by using sophisticated formulas that can be easily created through a spreadsheet. In the real world, two possible outcomes for a stock price in six months is an assumption. The stock markets are volatile, and stocks move up and down based on market- and firm-specific factors. Consider the case of SolarSystems Inc.: Shares...
2. Exercise value and option price The value derived from exercising an option immediately is the...
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. The...
5. A call option on Company B common stock is worth $8 with 7 months before...
5. A call option on Company B common stock is worth $8 with 7 months before expiration. The strike price on the call is $40 and the price per share is currently trading at $44 per share. The put option at the same exercise price is worth $1.50. a. Is the call option in or out or the money? b. Is the put option in or out of the money? c. At what extra above expiration value is the call...
1. Draw payoff diagrams for the following option trading strategies. Assume all options have the same...
1. Draw payoff diagrams for the following option trading strategies. Assume all options have the same expiration date. a. Buy a share and write a call on the stock b. Buy a call with exercise price X1 and write a call with an exercise price X2 on the same stock, with X1 < X2. c. Buy a call with exercise price X1, sell two calls with exercise price X2 and buy a call with exercise price X3 with X1 X2...
The goal of this project is to examine option trading strategies. The project requires you to...
The goal of this project is to examine option trading strategies. The project requires you to work in Excel with the provided spreadsheet. A) Bull Spread Payoff Long call option K1 = Short call option K2 = Stock Price (ST) Total Payoff $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 $60.00 A) Consider buying a call option with a strike of $20 and a selling call option with strike of $30. Fill in the table for...
2. Exercise value and option price The value derived from exercising an option immediately is the...
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. Consider...
Please solve by hand and not on the computer. Thanks. Use the option quote information shown...
Please solve by hand and not on the computer. Thanks.
Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $85 Calls Last 2.80 6.00 8.50 10.20 160 127 1.40 3.90 3.65 170 a. Are the call options in the money? What is the intrinsic value of an RWI Corp. call option? b. Are the put options in the money? What is the intrinsic value of an RWJ Corp. put option?...
Problem 14-04 You strongly believe that the price of Breener Inc. stock will rise substantially from...
Problem 14-04
You strongly believe that the price of Breener Inc. stock will
rise substantially from its current level of $138, and you are
considering buying shares in the company. You currently have
$12,420 to invest. As an alternative to purchasing the stock
itself, you are also considering buying call options on Breener
stock that expire in four months and have an exercise price of
$140. These call options cost $10 each.
Compare and contrast the size of the potential...
Learn Corp. (Ticker: LC), an education technology company, is considered to be one of the least risky companies in the education sector. Investors trade call options for Leam Corp., whose stock is currently trading at $50.00. Suppose you are interested in buying a call option with a strike price of $40.00 that expires in 6 months. (Assume that you get the option for free!) Based on speculations and probability analysis, you compute and collect the following information for your price...
5. Option pricing - Single-period binomial approach A Aa The value of an option can be calculated by using a step-by-step approach in the case of single periods or by using sophisticated formulas that can be easily created through a spreadsheet. In the real world, two possible outcomes for a stock price in six months is an assumption. The stock markets are volatile, and stocks move up and down based on market- and firm-specific factors. Consider the case of Canada...
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. The...
1. Draw payoff diagrams for the following option trading strategies. Assume all options have the same expiration date. a. Buy a share and write a call on the stock b. Buy a call with exercise price X1 and write a call with an exercise price X2 on the same stock, with X1 < X2. c. Buy a call with exercise price X1, sell two calls with exercise price X2 and buy a call with exercise price X3 with X1 X2...
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. Consider...
Please solve by hand and not on the computer. Thanks.
Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $85 Calls Last 2.80 6.00 8.50 10.20 160 127 1.40 3.90 3.65 170 a. Are the call options in the money? What is the intrinsic value of an RWI Corp. call option? b. Are the put options in the money? What is the intrinsic value of an RWJ Corp. put option?...
Problem 14-04
You strongly believe that the price of Breener Inc. stock will
rise substantially from its current level of $138, and you are
considering buying shares in the company. You currently have
$12,420 to invest. As an alternative to purchasing the stock
itself, you are also considering buying call options on Breener
stock that expire in four months and have an exercise price of
$140. These call options cost $10 each.
Compare and contrast the size of the potential...
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