A Long-term Equity AnticiPation Security (LEAPS) to buy stock at $28 expires after one year and currently sells for $7. The underlying stock is selling for $31.

1. What is the intrinsic value and the time premium paid for the LEAPS? If the answer is zero, enter "0". Round your answer to the nearest dollar.

   Intrinsic value: $

   Time premium: $

2. What will be the value of this LEAPS if the price of the stock at the expiration of the LEAPS is $23? $28? $33? $43? If the answer is zero, enter "0". Round your answers to the nearest dollar.

   Price of the stock	Value of the LEAP at expiration
   $23	$
   $28	$
   $33	$
   $43	$

3. If the price of the stock is $48 at the expiration of the LEAPS, what is the percentage return that is earned by an investor in the stock and an investor in the LEAPS? Round your answers to one decimal place.

   Return in the stock: %

   Return in the LEAPS: %

   Does the option in this problem illustrate the successful use of financial leverage?

   This is an example of use of financial leverage because the option rose by the amount than the stock rose.