What is the value of a put option if the underlying stock price is $42, the strike
Question:
What is the value of a put option if the underlying stock price is $42, the strike price is $35, the underlying stock volatility is 47 percent, and the risk free rate is 5 percent? Assume the option has 140 days to expiration.
Strike PriceIn finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
Step by Step Answer:
Given Data Current stock price 42 Exercise p...View the full answer
Fundamentals of Investments Valuation and Management
ISBN: 978-0078115660
7th edition
Authors: Bradford Jordan, Thomas Miller
Related Video
A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.
Students also viewed these Accounting questions
-
Assume stock XYZ does not pay dividends and has a market value of $98 per share. There is a 60-percent chance that the stock will trade for $130 in one year, and a 40-percent chance that it will...
-
The market value of Whole Foods stock is currently $53.73 per share, and the annual risk-free rate is 3 percent. A three-month call option on the stock with a strike price of $55 sells for $2.15....
-
1. Which of the following statements about a call option is false? a. A call option is the right, not the obligation, to buy the underlying asset. b. A call option is in the money if the asset price...
-
Wynn Resorts owns a variety of popular gaming resorts. Its annual report contained the following information: Debenture Conversions Our convertible debentures are currently convertible at each...
-
Your company asks you to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. You arrive on Thursday, December 30, and find that the client has just...
-
Sketch the SCS triangular and curvilinear UHs and the mass curve for a 100-mi2 watershed which is 60% good condition meadow and 40% good cover forest land. The watershed consists of 70% soil group C...
-
Mega Millions is a multistate lottery in which players try to guess the numbers that will turn up in a drawing of numbered balls. One of the balls drawn is the Mega Ball. Matching the number drawn on...
-
Why do some transactions require an entry in a fund and another in an account group? What impact would there be if a journal entry were made only in the fund or only in the account group?
-
Use the appropriate formula to calculate working capital, then discuss the business's current financial liquidity position. Does the business have sufficient working capital on hand to address bills...
-
Almeda Products, Inc., uses a job-order costing system. The companys inventory balances on April 1, the start of its fiscal year, were as follows: During the year, the following transactions were...
-
The stock of Lead Zeppelin, a metal manufacturer, currently sells for $68 and has an annual standard deviation of 41 percent. The risk-free rate is 6 percent. What is the value of a put option with a...
-
A stock with an annual standard deviation of 30 percent currently sells for $67. The risk-free rate is 3 percent. What is the value of a put option with a strike price of $80 and 60 days to...
-
Express each of the following ratios in its lowest terms. 10 1/2 : 7 : 4 1/5
-
In transonic airfoil flow, how can the lift loss due to the flatness of the upper airfoil be compensated by the change of the lower airfoil?
-
What are the main characteristics of the supercritical airfoil flow? Why can the flat upper wing suppress shock and reduce shock intensity?
-
What conditions is the shock wave drag of transonic airfoil the largest?
-
What is a shock stall? How does the lift coefficient change with Mach number when a shock stall occurs?
-
Try to explain the main factors affecting the lift-to-drag ratio of an airfoil.
-
Refer to the information in BE37. Determine the financial statement effects for (1) The payment of rent in advance on October 1 and (2) The adjusting entry for rent expired by December 31. Data from...
-
In Problems, solve each system of equations. x + 2y + 3z = 5 y + 11z = 21 5y + 9z = 13
-
Given the information below for HooYah! Corporation, compute the expected share price at the end of 2017 using price ratio analysis. Assume that the historical average growth rates will remain the...
-
Given the information below for StartUp.Com, compute the expected share price at the end of 2017 using price ratio analysis. Year 2016 2015 2013 2014 $ 68.12 Price $ 95.32 $104.18 N/A -3.68 EPS N/A...
-
The current price of Parador Industries stock is $67 per share. Current earnings per share are $3.40, the earnings growth rate is 6 percent, and Parador does not pay a dividend. The expected return...
-
Dorothy.com uses the allowance method of accounting for bad debts. The company produced the following aging of the accounts receivable at year-end. (a) Calculate the total estimated bad debts based...
-
Alden Company's monthly data for the past year follow. Management wants to use these data to predict future variable and fixed costs. Month Units Sold 1 318,000 2 163,000 Total Cost $ 155,500 99,250...
-
The following information was available from the inventory records of Swifty Company for January: Units Unit Cost Total Cost Balance at January 1 8800 $9.79 $86152 Purchases: January 6 6100 10.32...
Study smarter with the SolutionInn App