Investment Management 1. Blair purchased 10 contracts of MSFT December 2016 $60

Question

Investment Management

1. Blair purchased 10 contracts of MSFT December 2016 $60 call at a premium of $1.5. The current price of MSFT stock is $58. What is the intrinsic value of the option? What is the time premium of the call? How much will the price of MSFT has to go up before the option is in the money? How much would she make if the stock price at the end of the option expiration is at $63?

2. Zach sold 20 put option on VRT with a strike price of $20. The premium for the put is $2.5. The current price for VRT is at $30. Two days after Zach made the transaction, the FDA denied a drug application by VRT and the stock price dropped to 12. How much money did Zach make/lose?

3. Tyler is considering buying shares in CSCO. The stock price is at $34 a share currently. Tyler has enough money to buy 500 shares or he can buy on margin. The margin interest is 8% and the maximum margin is 50%. How much money would Tyler make in one year under the two scenarios if the stock price of CSCO is $38 in one year and CSCO pays $1 in dividend? What is the percentage returns under those two scenario?

Explanation / Answer

1. Blair purchased 10 contracts of msft december 2016 given is out the money. here strike price is more than the spot price so here

intrinsic value = 0 time value = 1.5 he will ge profit t 10 contract * 63 he will gain 3 dollars for single contract

2.. zach sold the 20 put option on vrt strikr price $20 premium is 2.5 current price is $30 so in this case he made the profit of 8 dollars for single options so 12*8 = $96

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