# Question: You are given the following information concerning options on a

You are given the following information concerning options on a particular stock:

Stock price = $62

Exercise price = $65

Risk-free rate = 6% per year, compounded continuously

Maturity = 6 months

Standard deviation = 47% per year

a. What is the intrinsic value of the call option? Of the put option?

b. What is the time value of the call option? Of the put option?

c. Does the call or the put have the larger time value component? Would you expect this to be true in general?

Stock price = $62

Exercise price = $65

Risk-free rate = 6% per year, compounded continuously

Maturity = 6 months

Standard deviation = 47% per year

a. What is the intrinsic value of the call option? Of the put option?

b. What is the time value of the call option? Of the put option?

c. Does the call or the put have the larger time value component? Would you expect this to be true in general?

## Answer to relevant Questions

In the previous problem, assume the risk-free rate is only 5 percent. What is the risk-neutral value of the option now? What happens to the risk-neutral probabilities of a stock price increase and a stock price decrease? Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $25,000 that matures in one year. The current market value of the firm’s assets is $27,300. The standard deviation of the return on the ...The put-call parity condition is altered when dividends are paid. The dividend adjusted put-call parity formula is: S × e-dt + P = E × e-Rt + C Where d is again the continuously compounded dividend yield. a. What effect do ...In an ideal economy, net working capital is always zero. Why might net working capital be positive in a real economy? Use the following information to answer Questions 8–12: Last month, BlueSky Airline announced that it ...Wildcat, Inc., has estimated sales (in millions) for the next four quarters as: Sales for the first quarter of the year after this one are projected at $170 million. Accounts receivable at the beginning of the year were $68 ...Post your question