Microsoft stock is trading for $20.40 right now.

1. How much would you likely pay for a call option on Microsoft with a strike price of $21.00? What is the intrinsic value and speculative value on this call option? Is it in- or our-of-the-money?

2. How much would you pay for a put option on Microsoft with a strike price of $21.00? What is its intrinsic and speculative value? Is it in- or out-of-the-money?

3. What direction do you believe the stock price must be going at this moment and why?

4. Could you estimate the risk-free rate at this moment, knowing that these options expire on May 15th and today is April 27th (assume 18 days until expiration). If so, how would you do it and what is your estimate?

5. You are trying to buy a put option on Bank of America stock today with 1 month to expiration and a strike price of $9.00. You find out it is not being traded. However, a call with the same strike price and expiration is being traded at $1.10. The current risk-free rate of interest is .84% per year. The stock just closed at $8.92. What is your estimate for the current price of this put option if it were traded?

Answer rating: 100% (QA)

1 Call Option Strike price K 2100 Current stock price textS 2040 Time till expiration taufractimedays365ight 18365 00493 RiskFree Rate rfight Assume 0... View the full answer