1. 1.

Calculating option values [LO 24.2] Treasury notes currently yield 3.4 per cent. Shares in Deadwood Manufacturing are currently selling for $58 per share. There is no possibility that the shares will be worth less than $50 per share in one year.

1. What is the value of a call option with a $45 exercise price and a year to expiration? What is the intrinsic value?

2. What is the value of a call option with a $35 exercise price and a year to expiration? What is the intrinsic value?

3. What is the value of a put option with a $45 exercise price and a year to expiration? What is the intrinsic value?