T-bills currently yield 4.3 percent. Stock in Nina Manufacturing is currently se
ID: 1175844 • Letter: T
Question
T-bills currently yield 4.3 percent. Stock in Nina Manufacturing is currently selling for $80 per share. There is no possibility that the stock will be worth less than $73 per share in one year a-1. What is the value of a call option with a $64 exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call option value a-2.What is the intrinsic value? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Intrinsic value b-1.What is the value of a call option with a $54 exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call option value b-2.What is the intrinsic value? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Intrinsic value c-1.What is the value of a put option with a $64 exercise price? (Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Put option value c-2.What is the intrinsic value? (Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Intrinsic valueExplanation / Answer
underlying price= $80
rate of interest=4.3%
a-1) exercise price=$64
value of call option= time value + Intrinsic value= $80*4.3% + $16 = $19.44
a-2) Call Option Intrinsic Value = Underlying Stock's Current Price – Call Strike Price = $80- $64
Intrinsic Value= $16
b-1)exercise price=$54
value of call option= time value + Intrinsic value= $80*4.3% + $26 = $3.44+ $26= $29.44=
b-2) Call Option Intrinsic Value = Underlying Stock's Current Price – Call Strike Price
= $80- 54= $26
c-1)value of put option= $3.44 + 0 =$3.44
c-2)Put Option Intrinsic Value = Put Strike Price – Underlying Stock's Current Price
= $64- $80 = -$16
Note: intrinsic value can't be negative hence it will become zero only
**Black-Scholes model would be used to option pricing i.e, for call option value or put option value for which volatility, time period and other variables required which are missing (for exact)
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