The price of a stock is $58. You can buy a six-month call at $57 for $4 or a six
ID: 2748945 • Letter: T
Question
The price of a stock is $58. You can buy a six-month call at $57 for $4 or a six-month put at $57 for $2.
What is the intrinsic value of the call? Round your answer to the nearest dollar.
What is the intrinsic value of the put? Round your answer to the nearest dollar
What is the time premium paid for the call? Round your answer to the nearest dollar.
What is the time premium paid for the put? Round your answer to the nearest dollar.
If the price of the stock falls, what happens to the value of the put?
What is the maximum you could lose by selling the call covered? Round your answer to the nearest dollar.
What is the maximum possible profit if you sell the stock short? Round your answer to the nearest dollar.
After six months, the price of the stock is $65.
What is the value of the call? Round your answer to the nearest dollar.
What is the profit or loss from buying the put? Round your answer to the nearest dollar.
If you had sold the stock short six months earlier, what would your profit or loss be? Round your answer to the nearest dollar.
If you had sold the call covered, what would your profit or loss be? Round your answer to the nearest dollar.
Explanation / Answer
= 57 - 58
= 0
Intrinsic Value (Put) = Strike Price – Underlying Price
= 58 - 57
= $1
For out-of-the-money options, since there is zero intrinsic value, time value = option price.
Thus, Time value = $4
For in-the-money options, time value can be calculated by subtracting the intrinsic value from the option price.
Thus, Time Value = Option price - Intrinsic Value
= 2 - 1
= $1
Intrinsic Value (Call) = Underlying Price – Strike PriceRelated Questions
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