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[answered] 1. What is the payoff for a call option with a strike price


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1.

 

What is the payoff for a call option with a strike price of $50 if the stock price at

 

expiration is $41? What if the stock price is $58?

 

1

 

. If the stock price at expiration is $41 then the payoff will be $

 

. 2

 

If the stock price at expiration is $58 then the payoff will be $

 

.

 

What is the payoff for a put option with a strike price of $50 if the stock price at expiration is

 

$49? What if the stock price is $63?

 

1

 

. If the stock price at expiration is $49 then the payoff will be $

 

. 2

 

If the stock price at expiration is $63 then the payoff will be $

 

. Problem 20.6

 

Assuming nothing else changes, what happens to the value of an option as time passes and the

 

expiration date gets closer?

 

The value of an option

 

as time passes.

 

Like owners of stock, owners of options can lose no more than the amount they invested. They are far

 

more likely to lose that full amount, but they cannot lose more. Do sellers of options have the same

 

limitation on their losses? Problem 20.10

 

What is the value at expiration of a call option with a strike price of $60: If the stock price is $3? The value at expiration is $

 

. If the stock price is $45?

 

The value at expiration is $

 

. If the stock price is $60?

 

The value at expiration is $

 

. If the stock price is $95?

 

The value at expiration is $

 

. If the stock price is $1,000? Suppose you have an option to buy a share of ABC Corp. stock for $100. The option expires

 

tomorrow, and the current price of ABC Corp. is $95. How much is your option worth?

 

Option will be worth You hold an American option to sell one share of Zyther Co. stock. The option expires tomorrow.

 

The strike price of the option is $54, and the current stock price is $49.

 

What is the value of exercising the option today?

 

Value of the option is $

 

.

 

If you wanted to sell the option instead, about how much would you expect to receive?

 

You should expect to receive

 

.

 

The stock of Socrates Motors is currently trading for $40 and will either rise to $48 or fall to $34 in one

 

month. The risk-free rate for one month is 1.5 percent. What is the value of a one-month call option with

 

a strike price of $40? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final

 

answer to 2 decimal places, e.g. 15.25.)

 

The stock of Socrates Motors is currently trading for $40 and will either rise to $60 or fall to $34 in one

 

month. The risk-free rate for one month is 2.3 percent. What is the value of a one-month call option with

 

a strike price of $25? (Round answer to 2 decimal places, e.g. 15.25.) The stock of Socrates Motors is currently trading for $45 and will either rise to $48 or fall to $35 in one

 

month. The risk-free rate for one month is 1.5 percent. What is the value of a one-month call option with

 

a strike price of $40? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final

 

answer to 2 decimal places, e.g. 15.25.) You are considering buying a three-month put option on Wing and a Prayer Construction stock. The

 

company's stock currently trades for $10 per share and its price will either rise to $12 or fall to $6 in

 

three months. The risk-free rate for three months is 2 percent. What is the appropriate price for a put

 

option with a strike price of $9? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and

 

final answer to 2 decimal places, e.g. 15.25.) ou hold a European put option on Tubes, Inc., stock, with a strike price of $150. Things

 

haven?t been going too well for Tubes. The current stock price is $2, and you think that it

 

will either rise to $2.95 or fall to $1.05 at the expiration of your option. The appropriate riskfree rate is 5 percent. What is the value of the option? (Round answer to 2 decimal places, e.g. 15.25.) One way to extend the binomial pricing model is by including multiple time periods.

 

Suppose Splittime, Inc., is currently trading for $100 per share. In one month the price will

 

either increase by $10 (to $110) or decrease by $10 (to $90). The following month will be

 

the same. The price will either increase by $10 or decrease by $10. Note that in two months,

 

the price could be $120, $100, or $80. The risk-free rate is 1.70 percent per month. Find the value today of an option if the price goes from $100 to $90 during the first month.

 

(Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)

 

If the price of Splittime goes from $100 to $90 during the first month, then the value of the

 

option will be $

 

. Find the value of an option if the price rises to $110 in the first month. (Round

 

intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)

 

If the price rises to $110 in the first month then the value of the option will be $

 

. Find the value today of an option to buy one share of Splittime in two months for a strike

 

price of $105. (Round intermediate calculations and final answer to 2 decimal places, e.g.

 

15.25.) The price of a stock that does not pay dividends is currently $35, and the risk-free rate is 4 percent. A

 

European call option on the stock, with a strike price of $35 and which expires in six months, sells for

 

$3.04. A European put option on the same stock with the same strike price sells for $2.35. Is there an

 

arbitrage opportunity here? If so, what is it?

 


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