suppose you purchase a treasury suppose you purchase a treasury suppose you purc
ID: 2788092 • Letter: S
Question
suppose you purchase a treasury suppose you purchase a treasury suppose you purchase a treasury Safari File Edit View History Bookmarks Window Help ezto. OD Question 3 (of 6) 3. 16.66 points You have taken a long position in a call option on IBM common stock. The option has an exercise price of $148 and IBMs stock currently trades at $153. The option premium is $7 per contract a. How much of the option premium is due to intrinsic value versus time value? Intrinsic value Time value b. What is your net profit on the option # IBM's stock price increases to $163 at expiration of the option and you exercise the option? (Negative amount should be indicated by a minus sign.) Net profit share c. What is your net profit if IBM's stock price decreases to $143? (Negative amount should be indicated by a minus sign Net profit per share References eBook & Resources Worksheet Oifficulty: Medium 5.837 ( 17 MacBook AirExplanation / Answer
Strike price, K = 148
Stock price, S = 153
Option premium, c = 7
a
Intrinsic value of a call option = max[(S-K),0]
= max[(153-148),0] = $5
Time value = option premium - intrinsic value = 7 - 5 = $2
b.
Net profit = intrinsic value - option premium
Net profit = max[(163-148),0] - 7 = $8
c.
Net profit = max[(143-148),0] - 7 = -$7
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.