1. If the current stock price is $50, the intrinsic value of a put option with a
ID: 2795415 • Letter: 1
Question
1. If the current stock price is $50, the intrinsic value of a put option with an exercise price of 40 is
-10
0
10
40
none of the above
2. Which of the following call options (X is the exercise price and T is time to maturity)has the highest value (all options are on the same underlying stock)?
X=150; T=.5
X=150; T=.25
X=120; T=.25
X=120; T=.5
We can’t tell without further information
3. Which of the following put options (X is the exercise price and T is time to maturity) has the highest value (all options are on the same underlying stock)?
X=150; T=.5
X=150; T=.25
X=120; T=.25
X=120; T=.5
We can’t tell without further information.
4. Suppose you own the 600 March put and have sold the 600 March call, both options on the same underlying stock. If the stock price at the expiration date = 580, what is your payoff?
-20
0
20
600
none of the above
5. The spot price of rhodium is $1000 per ounce. The one-year riskless rate is 0.18%. What is the one-year futures price of rhodium assuming there is no additional cost or benefit of holding this commodity?
$998.20
$1,000
1001.8
none of the above
-10
0
10
40
none of the above
Explanation / Answer
1. Given, current stock price is 50 and exercise price is 40 as it is the put option , put option gives the holder , The Right to Sell, therefore the put holder sells the option only if the exercise price is higher than the spot price with the intention to earn profit whereas in the present scenario the exercise price is given as 40 which is less than the spot price i.e 50 thus the put holder will lapse the put option and will sell it at spot on a later date @50 instead iof selling at 40 (The Exercise Price), thus the value of the option will be the cost of the premuim, as the exercise price is lower than the spot price the put option is said to be out of money and it will not have any intrinsic value.
2 and 3rd . The value of call or put option can be derived by having access to the spot price and exercise price and time value of the money then can be derived , here the spot price details are not given thus further information is required as we cannot assume the spot price to be lower or higher than the exercise price , if we assume as such the answer will differ as per the assumption.
4. Payoff in this case will be "0" as we gain in put option by 20 and we lose in call option by 20 therofore the net payoff will be "0" i.e in put option i gain because i have the spot price as 580 but i have sold at 600 which results in profit of 20 and for call option i lost because the call is exercised at 600 whose spot price is 580 i.e if i could lapse the cal i will be able to buy the option at 580 only whereas due to the option i bought it at 600 thus it lead to a loss of 20.
5.The Future price of rhodium is 1001.8 i.e (1000+.18%), spot price plus rate of interest gives the future price of the contract.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.