1. Say that on a recent day, Wal Mart stock closed at $55.19 per share, down $.05 on the day. (table in the attachment) Consider the following chart (also available for download by clicking on the link below) giving the premium as of close of trading on that day, on various options on Wal Mart stock: 1(a). What was the premium on the July ?15 WMT 47.50 call, i.e., the Wal Mart call which expires in July ?15 and has a strike price of $47.50? 1(b). How much would an investor who wanted to buy 1 contract of this option have had to spend? 1(c). What is the formula for the intrinsic value of a call? What was the intrinsic value of the June ?15 WMT 50 call? Was this option ?in the money? or ?out of the money?? What was the time value of this option? 1(d). Was the July ?15 WMT 60 call in or out of the money? What was the intrinsic value of this option? What was the time value of this option? 1(e). What was the premium on the July ?15 WMT 60 put? Was this option in or out of the money? What was the intrinsic value of this put? What is the time value? 1(f). What was the intrinsic value of the June ?15 WMT 50 put? Was this option in or out of the money? What was the option?s time value? (50 points) 2. ErenCo is an up-and-coming stone quarry company. A recent report, reflecting the general sentiment of all market participants, projected the following prices and probabilities for ErenCo stock on June 19, 2015: Probability 1/3 1/2 1/6 Stock Price $15 $10 $6 2(a). According to the EMH, what would you expect the market price of ErenCo stock to be today? Why? 2(b). Nancy, an investor in ErenCo, decides to buy a put option on ErenCo stock with a strike price (exercise price) of $9 which expires on the third Friday of June (June 19), 2015. What would she have to pay in today?s market for this option? In general, what determines the price an investor will have to pay for an option?

WMT (WAL MART STORES INC) Calls Last Sale Net Bid Ask Vol 55.19 -0.05 Open Puts Int Net Bid Ask Vol 0.0 12.65 13.05 0 15 June 45.00 (WMT LI-E) 10.15 0.0 10.15 10.60 0 224 15 June 45.00 (WMT XI-E) 15 June 47.50 (WMT LW-E) 7.56 0.0 7.70 8.10 0 15 June 50.00 (WMT LJ-E) 5.80 0.0 5.25 5.35 290 5611 15 June 50.00 (WMT XJ-E) 0.02 -0.02 0.02 0.03 112 66726 15 June 52.50 (WMT LX-E) 3.33 -0.02 2.83 2.89 182 15093 15 June 52.50 (WMT XX-E) 0.08 -0.07 0.08 0.11 386 20154 15 June 55.00 (WMT LK-E) 0.92 -0.32 0.85 0.89 1672 34325 15 June 55.00 (WMT XK-E) 0.59 -0.01 0.58 0.62 2663 27823 15 June 57.50 (WMT LY-E) 0.20 -0.08 0.12 0.14 2220 20681 15 June 57.50 (WMT XY-E) 1.85 -0.41 2.33 2.38 365 10451 15 June 60.00 (WMT LL-E) 0.03 -0.01 0.01 0.04 114 35895 15 June 60.00 (WMT XL-E) 4.70 -0.15 4.70 4.80 30 6125 15 June 62.50 (WMT LA-E) 0.01 0.0 0.0 0.03 0 20656 15 June 62.50 (WMT XA-E) 7.55 0.0 7.05 7.35 0 4134 15 June 65.00 (WMT LM-E) 0.02 0.0 0.0 0.02 0 19428 15 June 65.00 (WMT XM-E) 10.43 0.0 9.40 9.85 0 2743 15 June 67.50 (WMT LR-E) 0.01 0.0 0.0 0.02 0 4278 15 June 67.50 (WMT XR-E) 10.60 0.0 11.90 12.40 0 763 15 June 70.00 (WMT LN-E) 0.02 0.0 0.0 0.02 0 4431 15 June 70.00 (WMT XN-E) 13.40 0.0 14.40 14.85 0 510 15 June 75.00 (WMT LO-E) 0.01 0.0 0.0 0.01 0 1057 15 June 75.00 (WMT XO-E) 19.50 +0.25 19.40 19.95 10 20 0.27 -0.11 0.28 0.30 219 3497 15 July 45.00 (WMT AI-E) 0.0 13.00 13.15 10.75 +0.45 10.65 10.80 0 0.02 0.0 0.0 0.02 0.02 0.0 0.0 0.02 45 14141 611 15 June 47.50 (WMT XW-E) 0.01 -0.03 0.0 0.03 42 16007 215 15 July 42.50 (WMT MV-E) 55 41905 15 July 45.00 (WMT MI-E) 1 4946 15 July 47.50 (WMT MW-E) 0 Open Int 15 June 42.50 (WMT LV-E) 12.30 15 July 42.50 (WMT AV-E) 12.82 28 15 June 42.50 (WMT XV-E) Last Sale 3194 0.48 -0.01 0.42 0.45 140 68355 15 July 47.50 (WMT AW-E) 8.82 +1.02 8.40 8.55 15 July 50.00 (WMT AJ-E) 6.60 -0.20 6.30 6.40 15 July 52.50 (WMT AX-E) 4.80 -0.15 4.45 4.55 121 3230 15 July 52.50 (WMT MX-E) 1.53 -0.18 1.67 1.72 15 July 55.00 (WMT AK-E) 2.96 -0.34 2.88 2.94 535 49005 15 July 55.00 (WMT MK-E) 2.51 -0.06 2.60 2.65 306 49303 15 July 57.50 (WMT AY-E) 1.84 -0.12 1.68 1.73 192 4390 15 July 57.50 (WMT MY-E) 3.85 -0.05 3.85 4.00 15 July 60.00 (WMT AL-E) 0.96 -0.04 0.88 0.92 495 67068 15 July 60.00 (WMT ML-E) 5.90 15 July 62.50 (WMT AA-E) 0.44 -0.07 0.40 0.44 432 3725 15 July 62.50 (WMT MA-E) 7.60 -1.35 7.60 7.70 15 July 65.00 (WMT AM-E) 0.18 -0.03 0.18 0.21 9.30 -1.33 9.85 10.00 15 July 70.00 (WMT AN-E) 0.04 -0.01 0.03 0.06 150 44079 15 July 70.00 (WMT MN-E) 15.75 0.0 14.70 14.85 0 1319 15 July 75.00 (WMT AO-E) 0.01 -0.02 0.01 0.03 0.0 19.35 19.95 0 259 44 68621 15 July 50.00 (WMT MJ-E) 64 82933 15 July 65.00 (WMT MM-E) 0.61 -0.09 0.67 0.70 179 31750 1.05 -0.04 1.06 1.09 210 119331 10 3546 15 July 75.00 (WMT MO-E) 20.50 0.0 5.55 5.70 78 80 3527 1174 0 67158 10 244 5 17887