1.A call option on Bedrock Boulders stock has a market price of $8. The stock sells for $28 a share, and the option has an exercise price of $25 a share. a. What is the exercise value of the call option? Round your answer to two decimal places. b. What is the premium on the option? Round your answer to two decimal places. 2. Options The exercise price on one of Flanagan Company's options is $12, its exercise value is $20 and its premium is $6. a. What is the option's market value? Round your answer to two decimal places. b. What is the price of the stock? Round your answer to two decimal places. 4.Assume you have been given the following information on Purcell Industries: Current stock price = $20 Exercise price of option = $14 Time to maturity of option = 6 months Risk-free rate = 8% Variance of stock price = 0.12 d1 = 1.74189 d2 = 1.49694 N(d1) = 0.95924 N(d2) = 0.93280 Using the Black-Scholes Option Pricing Model, what would be the value of the option? Round your answer to two decimal places. 5. a. What is the implied interest rate on a Treasury bond futures contract that settled at 100-30? The contract is for $100,000 of a hypothetical 6 percent coupon, semiannual payment bond with 15 years to maturity. Round your answer to two decimal places. ?% b. If interest rates increased by 1%, what would be the contract's new value? Use rounded rates from the previous question in your calculations. Round your answer to two decimal places. 6. Problem 18-6. Hedging The Zinn Company plans to issue $20,000,000 of 10-year semiannual bonds in December to help finance a new research and development laboratory. It is now August, and the current cost of debt to the high-risk biotech company is 11%. However, the firm's financial manager is concerned that interest rates will climb even higher in coming months. TREASURE BONDS (CBT) - $100,000; PTS 32nds OF 100% -------------------------------------------------------------------------------- ? ?????? LIFETIME ?????? ? Delivery Month (1) Open (2) High (3) Low (4) Settle (5) Change (6) High (8) Low (9) Open Interest (9) -------------------------------------------------------------------------------- Sept 116-07 116-24 116-00 116-17 9 119-23 108-15 563,857 Dec 115-28 116-12 115-22 116-05 9 119-07 108-23 55,147 Mar06 115-30 115-30 115-28 115-29 9 118-19 113-03 207 June 115-21 115-21 115-21 115-25 9 115-21 115-05 2 b. Assume that interest rates in general increase by 200 basis points. How much did the firm gain or lose? (Hint: The future contracts are on hypothetical 15-year, 6% semiannual coupon bonds.) Round your answer to two decimal places. 7. Audrey is considering an investment in Morgan Communications, whose stock currently sells for $63. A put option on Morgan's stock, with an exercise price of $56, has a market value of $3.52. Meanwhile, a call option on the stock with the same exercise price and time to maturity has a market value of $7.45. The market believes that at the expiration of the options the stock price will be either $70 or $50, with equal probability. a. What is the premium associated with the put option? Round your answer to two decimal places. b. What is the premium associated with the call option? Round your answer to two decimal places. c. If Morgan's stock price increases to $70, what would be the return to an investor who bought a share of the stock? Round your answer to two decimal places. ?% d. If the investor bought a call option on the stock? Round your answer to two decimal places. ?% e. If the investor bought a put option on the stock? Round your answer to two decimal places. ?% f. If Morgan's stock price decreases to $50, what would be the return to an investor who bought a share of the stock? Round your answer to two decimal places. ?% g. If the investor bought a call option on the stock? Round your answer to two decimal places. ?% h. If the investor bought a put option on the stock? Round your answer to two decimal places. ?% i. If Audrey buys 0.6 share of Morgan Communications and sells one call option on the stock, has she created a riskless hedged investment? -Select-yesno What is the total value of her portfolio under each scenario? Round your answers to two decimal places. j. $50: k. $70: l. If Audrey buys 0.8 share of Morgan Communications and sells one call option on the stock, has she created a riskless hedged investment? -Select-yesno What is the total value of her portfolio under each scenario? Round your answers to two decimal places. m. $50: n. $70: 8. Problem 18-8. Riskless hedge Stewart Enterprises' current stock price is $60 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $50. These options will expire at the end of 1 year, at which time Stewart's stock will be selling at one of two prices, $40 or $75. The risk-free rate is 7%. As an assistant to the firm's treasurer, you have been asked to perform the following tasks to arrive at the value of the firm's call options. a. Find the range of values for the ending stock price in 1 year. $ Find the range of values for the call option at the option's expiration in 1 year. $ b. Equalize the range of payoffs for the stock and the option. (Round your answer to two decimal places) The ratio of ending price to ending stock value is $ c. Create a riskless hedged investment. (Round your answer to two decimal places) Portfolio value is $ d. What is the cost of the stock in the riskless portfolio? (Round your answer to two decimal places) $ e. What is the present value of the riskless portfolio? (Round your answer to two decimal places.) $ f. From your answers in Parts d and e, what is the value of the firm's call option? (Round your answer to two decimal places.) $