Assist with questions 1-10; 14-15. Questions and Problems 1. Call Option Payoffs (LO2, CFA2) Suppose you purchase

Assist with questions 1-10; 14-15.

Transcribed Image Text:

Questions and Problems 1. Call Option Payoffs (LO2, CFA2) Suppose you purchase eight call contracts on Macron Technology stock. The strike price is $60 and the premium is $3. If, at expiration, the stock is selling for $64 per share, what are your call options worth? What is your net profit? 2. Put Option Payoffs (LO2, CFA2) Suppose you purchase five put contracts on Testaburger Co. The strike price is $45 and the premium is $3. If, at expiration, the stock is selling for $39 per share, what are your put options worth? What is your net profit? 3. Stock versus Options (LO2, CFA1) Stock in Cheezy-Poofs Manufacturing is currently priced at $50 per share. A call option with a $50 strike and 90 days to maturity is quoted at $1.95. Compare the percentage gains and losses from a $97,500 investment in the stock versus the option in 90 days for stock prices of $40, $50, and $60. Use the following options quotations to answer Problems 4 through 7: Close Hendreeks 103 103 103 103 we replicate a share of stock using a put, Strike Price 100 100 100 100 Expiration Feb Mar Apr Jul Vol. 72 41 16 8 Calls Last 5.20 8.40 10.68 14.30 Vol. 50 29 10 2 Puts Last 2.40 4.90 6.60 10.10 4. Option Quotes (LO1) Suppose you buy 50 April 100 call option contracts. How much will you pay, ignoring commissions? 5. Calculating Option Payoffs (LO2, CFA2) In Problem 4, suppose that Hendreeks stock is selling for $105.70 per share on the expiration date. How much is your options investment worth? What if the stock price is $101.60 on the expiration date? 6. Calculating Option Payoffs (LO2, CFA2) Suppose you buy 30 March 100 put option con- tracts. What is your maximum gain? On the expiration date, Hendreeks is selling for $84.60 per share. How much is your options investment worth? What is your net gain? 7. Calculating Option Payoffs (LO2, CFA2) Suppose you write 30 of the July 100 put con- tracts. What is your net gain or loss if Hendreeks is selling for $90 at expiration? For $110? What is the break-even price, that is, the terminal stock price that results in a zero profit? 8. Put-Call Parity (LO4, CFA1) A call option is currently selling for $3. It has a strike price of $65 and six months to maturity. What is the price of a put option with a $65 strike price and six months to maturity? The current stock price is $66 and the risk-free interest rate is 5 percent. 9. Put-Call Parity (LO4, CFA1) A call option currently sells for $8. It has a strike price of $80 and five months to maturity. A put with the same strike and expiration date sells for $6. If the risk-free interest rate is 4 percent, what is the current stock price? 10. Put-Call Parity (LO4, CFA1) A put option with a strike price of $50 sells for $3.20. The option expires in two months and the current stock price is $51. If the risk-free interest rate is 5 percent, what is the price of a call option with the same strike price? 11. Put-Call Parity (LO4, CFA1) A call option is currently selling for $3.90. It has a strike price of $45 and five months to maturity. The current stock price is $47 and the risk-free rate is 4 percent. The stock will pay a dividend of $1.45 in two months. What is the price of a put option with the same exercise price? 12. Put-Call Parity (LO4, CFA1) A call option is currently selling for $4.60. It has a strike price of $60 and three months to maturity. A put option with the same strike price sells for $7.20. The risk-free rate is 6 percent and the stock will pay a dividend of $2.10 in three months. What is the current stock price? Questions and Problems 1. Call Option Payoffs (LO2, CFA2) Suppose you purchase eight call contracts on Macron Technology stock. The strike price is $60 and the premium is $3. If, at expiration, the stock is selling for $64 per share, what are your call options worth? What is your net profit? 2. Put Option Payoffs (LO2, CFA2) Suppose you purchase five put contracts on Testaburger Co. The strike price is $45 and the premium is $3. If, at expiration, the stock is selling for $39 per share, what are your put options worth? What is your net profit? 3. Stock versus Options (LO2, CFA1) Stock in Cheezy-Poofs Manufacturing is currently priced at $50 per share. A call option with a $50 strike and 90 days to maturity is quoted at $1.95. Compare the percentage gains and losses from a $97,500 investment in the stock versus the option in 90 days for stock prices of $40, $50, and $60. Use the following options quotations to answer Problems 4 through 7: Close Hendreeks 103 103 103 103 we replicate a share of stock using a put, Strike Price 100 100 100 100 Expiration Feb Mar Apr Jul Vol. 72 41 16 8 Calls Last 5.20 8.40 10.68 14.30 Vol. 50 29 10 2 Puts Last 2.40 4.90 6.60 10.10 4. Option Quotes (LO1) Suppose you buy 50 April 100 call option contracts. How much will you pay, ignoring commissions? 5. Calculating Option Payoffs (LO2, CFA2) In Problem 4, suppose that Hendreeks stock is selling for $105.70 per share on the expiration date. How much is your options investment worth? What if the stock price is $101.60 on the expiration date? 6. Calculating Option Payoffs (LO2, CFA2) Suppose you buy 30 March 100 put option con- tracts. What is your maximum gain? On the expiration date, Hendreeks is selling for $84.60 per share. How much is your options investment worth? What is your net gain? 7. Calculating Option Payoffs (LO2, CFA2) Suppose you write 30 of the July 100 put con- tracts. What is your net gain or loss if Hendreeks is selling for $90 at expiration? For $110? What is the break-even price, that is, the terminal stock price that results in a zero profit? 8. Put-Call Parity (LO4, CFA1) A call option is currently selling for $3. It has a strike price of $65 and six months to maturity. What is the price of a put option with a $65 strike price and six months to maturity? The current stock price is $66 and the risk-free interest rate is 5 percent. 9. Put-Call Parity (LO4, CFA1) A call option currently sells for $8. It has a strike price of $80 and five months to maturity. A put with the same strike and expiration date sells for $6. If the risk-free interest rate is 4 percent, what is the current stock price? 10. Put-Call Parity (LO4, CFA1) A put option with a strike price of $50 sells for $3.20. The option expires in two months and the current stock price is $51. If the risk-free interest rate is 5 percent, what is the price of a call option with the same strike price? 11. Put-Call Parity (LO4, CFA1) A call option is currently selling for $3.90. It has a strike price of $45 and five months to maturity. The current stock price is $47 and the risk-free rate is 4 percent. The stock will pay a dividend of $1.45 in two months. What is the price of a put option with the same exercise price? 12. Put-Call Parity (LO4, CFA1) A call option is currently selling for $4.60. It has a strike price of $60 and three months to maturity. A put option with the same strike price sells for $7.20. The risk-free rate is 6 percent and the stock will pay a dividend of $2.10 in three months. What is the current stock price?

Answer rating: 100% (QA)

Answer Lets address each of the questions and problems one by one Call Option Payoffs Number of call contracts 8 Strike price 60 Premium 3 Stock price ... View the full answer