13. You hold a put option on a stock with a strike price of $23. The stock is se

Question

13.

You hold a put option on a stock with a strike price of $23. The stock is selling for $25. What is the approximate minimum value of the put option

a. $ 0

b. $ 2

c. $23

d. $25

e. Cannot determine without additional information.

14.

Suppose you believe that Du Pont's stock price is going to decline from its current level of $ 81.68 sometime during the next 5 months. For $ 226.53 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $70 per share. If you bought a 100-share contract for $ 226.53 and Du Pont's stock price actually changed to $ 60.79 , your net profit (or loss) after exercising the option would be ______? Show your answer to the nearest .01. Do not use $ or , signs in your answer. Use a - sign if you lose money on the contract.

Your Answer:_________

a. $ 0

b. $ 2

c. $23

d. $25

e. Cannot determine without additional information.

14.

Suppose you believe that Du Pont's stock price is going to decline from its current level of $ 81.68 sometime during the next 5 months. For $ 226.53 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $70 per share. If you bought a 100-share contract for $ 226.53 and Du Pont's stock price actually changed to $ 60.79 , your net profit (or loss) after exercising the option would be ______? Show your answer to the nearest .01. Do not use $ or , signs in your answer. Use a - sign if you lose money on the contract.

Your Answer:_________

Explanation / Answer

13.

Value of option is equal to its intrinsic value and time value .Prior to expiration a put option must be worth at least the exercise price minus stock price.Since an option cannot sell below its intrinsic value,its value cannot be negative.Therefore minimum value of put option is zero.

ans is (a) $0

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