1) Assume an investor writes a call option at a strike price of $40 for a premium of S4. This is a naked option (10 points) a. What would be the gain or loss if the stock price closed at 50, $20, $40,$60 and $10007 b. What would be the break-even point in terms of the closing price of the stock? c. What is the maximum gain you may have? d. What is the maximum loss you may have? 2) A European put option with strike price of $20 sells for $2.00. The option expires in three months, and the current stock price is $22. If the risk-free interest rate is 6 percent, what is the price of a European call option with the same maturity and strike price? (10 points). 3) Consider an exchange-traded call option contract to buy 300 shares with a strike price of $69.00 and maturity in four months. Explain how the terms of the option contract change when there is (15 points): a. A 15% stock dividend b. A 15% cash dividend A 3-for-2 stock split 4) You write a call with strike price of $40 on a stock that you have bought at 544 (this is a "in the money covered call"). The call premium is $7.00 (15 points). a. What is the expiration net dollar profit or loss if the stock price ends at 50, 535, 540, 545 and $1.0007 b. What is the maxium potential loss from this protective call? c. What is the maximum potential gain from this protective call? d. Find the break-even stock price for prices). 16 & 7 8 9 1) Assume an investor writes a call option at a strike price of $40 for a premium of S4. This is a naked option (10 points) a. What would be the gain or loss if the stock price closed at 50, $20, $40,$60 and $10007 b. What would be the break-even point in terms of the closing price of the stock? c. What is the maximum gain you may have? d. What is the maximum loss you may have? 2) A European put option with strike price of $20 sells for $2.00. The option expires in three months, and the current stock price is $22. If the risk-free interest rate is 6 percent, what is the price of a European call option with the same maturity and strike price? (10 points). 3) Consider an exchange-traded call option contract to buy 300 shares with a strike price of $69.00 and maturity in four months. Explain how the terms of the option contract change when there is (15 points): a. A 15% stock dividend b. A 15% cash dividend A 3-for-2 stock split 4) You write a call with strike price of $40 on a stock that you have bought at 544 (this is a "in the money covered call"). The call premium is $7.00 (15 points). a. What is the expiration net dollar profit or loss if the stock price ends at 50, 535, 540, 545 and $1.0007 b. What is the maxium potential loss from this protective call? c. What is the maximum potential gain from this protective call? d. Find the break-even stock price for prices). 16 & 7 8 9
