# 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?

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?

## Answer to relevant Questions

You purchase 100 shares for $50 a share ($5,000), and after a year the price rises to $60. What will be the percentage return on your investment if you bought the stock on margin and the margin requirement was (a) 25 ...Last year Leather Boot, Inc. had investments in Paris worth 500,000 euros. At that time, the euro was worth $1.20. Today the euro is trading for $1.30. What is the gain or loss in value of the inventory expressed in dollars ...An investment generates $10,000 per year for 25 years. If you can earn 10 percent on other investments, what is the current value of this investment? If its current price is $120,000, should you buy it? You purchase a town house for $140,000. After a down payment of $30,000, you obtain a mortgage loan at 9 percent that requires annual payments for 15 years. a. What are the annual payments? b. How much of the first payment ...The price of a stock is $29. A put option to sell that stock at $30 is currently selling for $3. You buy the stock and the put. Complete the following table and answer the questions. a. What is the maximum possible profit on ...Post your question

0