C.
Suppose you hold LLL employee stock options representing options to buy 10,000 shares of LLL stock. You wish to hedge your position by buying put options with three-month expirations and a $22.50 strike price. Immediately after establishing your put options hedge, volatility for LLL stock suddenly jumps to 45 percent. This changes the number of put options required to hedge your employee stock options. LLL accountants estimated the value of these options using the Black-Scholes-Merton formula and the following assumptions: S= current stock price = $20.72 K= option strike price = $23.15 r=risk-free interest rate = 0.043 = stock volatility = 0.29 T= time to expiration = 3.5 years How many put option contracts are now required? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Number of option contracts A stock is currently priced at $74 and will move up by a factor of 1.20 or down by a factor of 0.80 over the next period. The risk-free rate of interest is 4.2 percent. What is the value of a call option with a strike price of $75? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of a call option Suppose you write 15 put option contracts with a $45 strike. The premium is $2.40. Evaluate your potential gains and losses at option expiration for stock prices of $35, $45, and $55. (Input all amounts as positive values.) Answer is complete but not entirely correct. loss IS $ 114 X At stock price of $35, the At stock price of $45, the At stock price of $55, gain IS $ 36 % gain is $ 36 X the Suppose you have a stock market portfolio with a beta of 1.15 that is currently worth $300 million. You wish to hedge against a decline using index options. Suppose you decide to use SPX calls. Calculate the number of contracts needed if the call option you pick has a delta of 0.50 and the S&P 500 Index is at 2050. (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number.) Number of option contracts 3,366 What is the value of a put option if the underlying stock price is $42, the strike price is $35, the underlying stock volatility is 47 percent, and the risk-free rate is 5 percent? Assume the option has 140 days to expiration. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of a put option $ 0.66 Suppose you hold LLL employee stock options representing options to buy 10,000 shares of LLL stock. You wish to hedge your position by buying put options with three-month expirations and a $22.50 strike price. Immediately after establishing your put options hedge, volatility for LLL stock suddenly jumps to 45 percent. This changes the number of put options required to hedge your employee stock options. LLL accountants estimated the value of these options using the Black-Scholes-Merton formula and the following assumptions: S= current stock price = $20.72 K= option strike price = $23.15 r=risk-free interest rate = 0.043 = stock volatility = 0.29 T= time to expiration = 3.5 years How many put option contracts are now required? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Number of option contracts A stock is currently priced at $74 and will move up by a factor of 1.20 or down by a factor of 0.80 over the next period. The risk-free rate of interest is 4.2 percent. What is the value of a call option with a strike price of $75? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of a call option Suppose you write 15 put option contracts with a $45 strike. The premium is $2.40. Evaluate your potential gains and losses at option expiration for stock prices of $35, $45, and $55. (Input all amounts as positive values.) Answer is complete but not entirely correct. loss IS $ 114 X At stock price of $35, the At stock price of $45, the At stock price of $55, gain IS $ 36 % gain is $ 36 X the Suppose you have a stock market portfolio with a beta of 1.15 that is currently worth $300 million. You wish to hedge against a decline using index options. Suppose you decide to use SPX calls. Calculate the number of contracts needed if the call option you pick has a delta of 0.50 and the S&P 500 Index is at 2050. (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number.) Number of option contracts 3,366 What is the value of a put option if the underlying stock price is $42, the strike price is $35, the underlying stock volatility is 47 percent, and the risk-free rate is 5 percent? Assume the option has 140 days to expiration. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of a put option $ 0.66
