A call option currently sells for $8. It has a strike price of $80 and five months
Question:
A call option currently sells for $8. It has a strike price of $80 and five months to maturity. A put with the same strike and expiration date sells for $6. If the risk-free interest rate is 4 percent, what is the current stock price?
Strike PriceIn finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
Step by Step Answer:
S C P K 1 ...View the full answer
Fundamentals of Investments, Valuation and Management
ISBN: 978-1259720697
8th edition
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin
Related Video
A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.
Students also viewed these Business questions
-
A call option currently sells for $9. It has a strike price of $80 and five months to maturity. A put with the same strike and expiration date sells for $5. If the risk-free interest rate is 4...
-
Consider a 6-month expiration European call option with exercise price $105. The underlying stock sells for $100 a share and pays no dividends. The risk-free rate is 5%. What is the implied...
-
A call option is currently selling for $7.20. It has a strike price of $55 and five months to maturity. The current stock price is $58, and the risk-free rate is 5.3 percent. The stock has a dividend...
-
Rainfall of magnitude 3.8cm and 2.8cm occurring on two consecutive 4-h durations on a catchment of area 27km produced the following hydrograph of flow at the outlet of the catchment. Estimate the...
-
What is the volume of a sugar cube that measures 1 cm on each side? What is the cross-sectional area of the cube? The total surface area?
-
Solve the system of equations graphically. If the system does not have a single ordered pair as a solution, state whether the system is inconsistent or dependent. y = 4x - 6 y = -x + 9
-
A call option sells for $4. It has a strike price of $40 and six months to maturity. If the underlying stock currently sells for $30 per share, what is the price of a put option with a $40 strike and...
-
Dorsett Corporation reported sales revenue of $257,000, net income of $45,300, cash of $9,300, and net cash provided by operating activities of $23,200. Accounts receivable have increased at three...
-
Three different varieties of tomato (Harvester, Ife No. 1 and Pusa Early Dwarf) and two different plant densities (10, 20 thousand plants per hectare) are being considered for a particular region. To...
-
Are networks of PCs and servers making mainframe computers obsolete? Explain.
-
Are the put options in the money? What is the intrinsic value of a Milson Corp. put option? Calls Puts Option & N.Y. Close Strike Vol. Last Vol. Price Expiration Last Milson Mar 66 1.06 59 55 98 3.50...
-
Are the call options in the money? What is the intrinsic value of a Milson Corp. call option? Calls Puts Option & N.Y. Close Strike Vol. Last Vol. Price Expiration Last Milson Mar 66 1.06 59 55 98...
-
Explain the radian measure of an angle.
-
Which of the following statements are correct regarding the setting of auditing standards in the United States? a. The AICPA is responsible for the setting of audit standards only for audits of...
-
Which of the following statements is true regarding the provision of assurance services? I. The third party who receives the assurance generally pays for the assurance received. II. Assurance...
-
The structure of CPA firms has gradually changed over the past decade with less of a pyramidal shape. Required a. Briefly explain the rationale for the pyramid organization structure of public...
-
You have been talking with one of your close col- leagues regarding graduate school. Your colleague has decided to go to graduate school to obtain additional training to become a bank loan officer....
-
When the sign test is used, what population parameter is being tested?
-
Cambridge Ltd is a public company supplying different types of packaging for the food and beverage industry. Among its products are labels for beer bottles, soft-drink bottles and jam jars and tins,...
-
Determine which of the following limits exist. Compute the limits that exist. lim x-0 1- + 3x X
-
Suppose a firm has a current dividend of D 0 = $5, which is expected to shrink at the rate g 1 = 10 percent for T = 5 years and thereafter grow at the rate g 2 = 4 percent. With a discount rate of k...
-
A stock will not pay dividends until three years from now. The dividend then will be $2.00 per share, the dividend payout ratio will be 40 percent, and return on equity will be 15 percent. If the...
-
In 2021, DTE had an ROE of 8.15 percent, EPS of $4.69, and a per-share dividend of D 0 = $3.56. Assuming a 5.5 percent discount rate, what is the value of DTEs stock?
-
Sports Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data for the most recent year follow: Total Baseball Helmets Football Helmets Sales revenue $460,000...
-
HDFS 3350 DJ Richards wondered if he had adequate life insurance for his family if he were to pass away. He decided to complete the Life Insurance Worksheet. His current yearly income is $38,400. He...
-
Reimel Furniture Company, Inc. incurred the following costs during 20x2. Direct material used Direct labor Manufacturing overhead $174,000 319,000 160,000 During 20x2, products costing $121,000 were...
Study smarter with the SolutionInn App