00 ezto. HNANCE Chapter 10 Homework Question 5 (of 6) value: 16.66 points You ha
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00 ezto. HNANCE Chapter 10 Homework Question 5 (of 6) value: 16.66 points You have purchased a put option on Kimberly Clark common stock. The option has an exercise price of $84 and Kimberly Clark's stock currently trades at $85.18. The option premium is $1.42 per contract. Assume that 100 shares are traded a. Calculate your net profit on the option if Kimberly Clark's stock price falls to $82 and you exercise the option. (Negative amount should be indicated by a minus sign. Do not round intermedlate Net profit b. Calculate your net profit on the option if Kimberly Clark's stock price does not change over the life of the option. (Negative amount should be indicated by a minus sign.) Net profit References eBook & Resources Worksheet Difficulty: Medium 5,938 17 MacBook AExplanation / Answer
For a put option,
Payoff = max[(Strike price - Stock price),0]
a.
Payoff = max[(84-82),0] = 2
Net profit per share = payoff - premium paid
Total Net profit = 100* (2 - 1.42) = $58
b.
Payoff = max[(84-85.18),0] = 0
Net profit per share = payoff - premium paid
Total Net profit = 100* (0 - 1.42) = -$142
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