A Long-term Equity AnticiPation Security (LEAPS) to buy stock at $25 expires after one year and currently
Question:
A Long-term Equity AnticiPation Security (LEAPS) to buy stock at $25 expires after one year and currently sells for $4. The underlying stock is selling for $26.
a. What is the intrinsic value and the time premium paid for the LEAPS?
b. What will be the value of this LEAPS if the price of the stock at the expiration of the LEAPS is $20? $25? $30? $40?
c. If the price of the stock is $45 at the expiration of the LEAPS, what is the percentage return that is earned by an investor in the stock and an investor in the LEAPS? Why does the option in this problem illustrate the successful use of financial leverage?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
a Intrinsic value of the LEAP 26 25 1 Time premium 4 1 3 ...View the full answer
Answered By
Madhvendra Pandey
Hi! I am Madhvendra, and I am your new friend ready to help you in the field of business, accounting, and finance. I am a College graduate in B.Com, and currently pursuing a Chartered Accountancy course (i.e equivalent to CPA in the USA). I have around 3 years of experience in the field of Financial Accounts, finance and, business studies, thereby looking forward to sharing those experiences in such a way that finds suitable solutions to your query.
Thus, please feel free to contact me regarding the same.
1+ Reviews
10+ Question Solved
Related Book For 
Basic Finance An Introduction to Financial Institutions Investments and Management
ISBN: 978-1111820633
10th edition
Authors: Herbert B. Mayo
Question Posted:
