The following quotes were observed for options on a given stock on November 1 of
ID: 2635281 • Letter: T
Question
The following quotes were observed for options on a given stock on November 1 of a given year. These are American calls except where indicated. Use the information to answer qui-mons 7 through 20. The stock price was 113.25. The risk-free rates were 7.30 percent (November). 7.50 percent (December) and 7.62 percent (January). The times to expiration were 0.0384 (November), 0.1342 (December), and 0.211 (January). Assume no dividends unless indicated. 7. What is the intrinsic value of the December 115 put? a. 1.75 b. 0.00 c. 3.90 d. 3.00 e. none of the above 8. What is the intrinsic value of the November 105 put? a. 0.30 b. 8.25 c. 8.50 d. 0.00 e. none of the above 9. What is the intrinsic value of the January 110 call? a. 0.00 b. 8.30 c. 3.75 d. 5.00 e. none of the above 10. Whit is the intrinsic value of the November 115 call? a. 1.50 b. 0.00 c. 2.80 d. 1.75 e. none of the above 11. What is the time value of the December 105 put? a. 1.30 b. 8.30 c. 0.00 d. 7.00 e. none of the above 12. What is the time value of the Novem.ba 115 put? a. 1.75 b. 2.80 c. 1.10 d. 0.00 e. none of the above 13. What is the time value of the November 110 call? a 0.00 b. 4.40 e. 1.15 d. 3.25 e. none of the aboveExplanation / Answer
Spot price =113.25
7. Intrinsic value of December 115 Put = Max (Strike -spot,0) = Max(115-113.25,0) =1.75
8. Intrinsic value of November 105 Put = Max (Strike -spot,0) = Max(105-113.25,0) = 0
9. Intrinsic value of Jan 110 Call = Max (Spot- Strike,0) = Max(113.25-110,0) = 3.25
10. Intrinsic value of Nov 115 Call = Max (Spot- Strike,0) = Max(113.25-115,0) = 0
11. Time Value = Option Value- Intrinsic value of December 105 Put =1.3- Max (105-113.25,0) =1.3
12. Time Value = Option Value- Intrinsic value of Nov 115 Put =2.8- Max (115-113.25, 0) =1.05
13. Time Value = Option Value- intrinsic value of Nov 110 call =4.4-Max (113.25-110) = 1.15
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