Question
10. What are the answers to 9a and be if on the day the option expires, the price of oil is $36.25 per barrel? Q9.
10. What are the answers to 9a and be if on the day the option expires, the price of oil is $36.25 per barrel?
Q9. 9. A firm owns a put option on 10,000 barrels of oil with a strike price of $37.50 per barrel. a. Does the firm exercise the option if on the day the option expires the price of oil is $40 per barrel? b. What is the cash flow on the day the option expires if the price of oil is $40 per barrel?
A9. Ans: It's a Put option that means option to sell the assets on the mutually agreed price, here since the strike price is $37.50 which is lessor than the market price of $40, hence The firm would not like to execrise the option since It can sell the assets in the amrket at $40 instead of selling it at $37.5 per barrel in the option, hence answer to the question
a) is the firm will/should not exercise the option on the day the option expires.
b) Cash flow of the option expires is 40*10000 - Premium paid for the opti
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