A LEAP with an expiration date of two years is an option to buy stock at $24.
Question:
A LEAP with an expiration date of two years is an option to buy stock at $24. The current market price of the stock is $35, and the market price of the LEAP is $15.
a) What is the option’s intrinsic value?
b) What is the time premium paid for the LEAP?
c) If after two years the stock is selling for $50, what will be the price of the LEAP? What is the percentage increase in the value of the stock and in the value of the option?
d) Why does the time premium disappear?
e) If after two years the stock is selling for $22, what will be the price of the LEAP? What is the percentage decrease in the value of the stock and in the value of the option?
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a The LEAPs intrinsic value Price of the ...View the full answer
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