Use information from finance.yahoo.com to answer the following questions.

a. What is Coke’s current price?

b. Now enter the ticker “KO” (for Coca-Cola) and find the AnalystOpinion tab. What is the mean 12-month target price for Coke? Based on this forecast, would at-the-money calls or puts have the higher expected profit?

c. What is the spread between the high and low target stock prices, expressed as a percentage of Coke’s current stock price? How (qualitatively) should the spread be related to the price at which Coke options trade?

d. Calculate the implied volatility of the call option closest to the money with time to expiration of about three months. You can use Spreadsheet 21.1 (available in Connect) to calculate implied volatility using the Goal Seek command.

e. Now repeat the exercise for Pepsi (ticker: PEP). What would you expect to be the relationship between the high versus low target price spread and the implied volatility of the two companies? Are your expectations consistent with actual option prices?

f. Suppose you believe that the volatility of KO is going to increase from currently anticipated levels. Would its call options be overpriced or underpriced? What about its put options?

g. Could you take positions in both puts and calls on KO in such a manner as to speculate on your volatility beliefs without taking a stance on whether the stock price is going to increase or decrease? Would you buy or write each type of option?

h. How would your relative positions in puts and calls be related to the delta of each option?