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1. The Last Resort Hotel sells, for $25, a coupon that allows the holder to stay for 1 week for $350. The regular price of

1. The Last Resort Hotel sells, for $25, a coupon that allows the holder to stay for 1 week for $350. The regular price of a 1-week stay is currently $450, but the price varies a great deal due to travel conditions. The coupon is good for 1 year.

a. What is the call option in the above discussion?

b. What are the five variables that would determine the value of the above call option?

2. A November call option for the Rather Corporation has a price or premium of 1⁄16. The closing price of Rather’s stock is $1.50, and the option’s exercise price is $3.00. Is the option “in the money,” “out of the money,” or “at the money”? Explain.

3. Brokaw, Inc., has a call option that expires in 2 months. Brokaw’s stock is currently trading at $53. The exercise price of the call option is $35. Which of the following call option prices are possible: $2, $12, or $20? Explain.

4. ABC Corp. is selling at $100 per share, and some strange call options begin trading that have widely varying strike prices and expiration dates.

a. What is the maximum price for which any of the call options can sell?

b. What is the minimum price for which any call option can sell?

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