I need help answering the questions in the attachment. I'm a visual person so could you break it down for me step by step with the formula included. Thank-you

Jessica

Jessica Less Columbia College FINC 354A Week 7 Homework All Homework Problem are taken out of the book called: Investments an Introduction (11th edition) by Herbert B. Mayo Chapter 17: problems # 2, 4, 6, 9 (pg. 646 in the book) 2. A particular call is the option to buy stock at $25. It expires in six months and currently sells for $4 when the price of the stock is $26. a) What is the intrinsic value of the call? What is the premium paid for the call? b) What will the value of this call be after six months if the price of the stock is $20? $25? $30? $40? c) If the price of the stock rises to $40 at the expiration date of the call, what is the percentage increase in the value of the call? Does this example illustrate favorable leverage? d) If an individual buys the stock and sells this call, what is the cash outflow (i.e., net cost) and what will the profit on the position be after six months if the price of the stock is $10, $15, $20, $25, $26, $30, $40? e) If an individual sells this call naked, what will the profit or loss be on the position after six months if the price of the stock is $20, $26? $40? 4. The price of a stock is $51. You can buy a six-month call at $50 for $5 or a six-month put at $50 for $2. a) What is the intrinsic value of the call? b) What is the intrinsic value of the put? c) What is the time premium paid for the call? d) What is the time premium paid for the put? e) If the price of the stock falls, what happens to the value of the put? f) What is the maximum you could lose by selling the call covered? g) What is the maximum possible profit if you sell the stock short? After six months, the price of the stock is $58 h) What is the value of the call? i) what is the profit or loss from buying the put? j) If you had sold the stock short six month earlier, what would your profit or loss be? k) If you had sold the call covered, what would your profit or loss be? 6. A particular put is the option to sell stock at $40. It expires after three months and currently sells for $2 when the price of the stock is $42. a) If an investor buys this put, what will the profit be after three months if the price of the stock is $45, $40, $35? b) What will the profit from selling this put be after three months is the price of the stock is $45, $40,$35? c) Compare the answers (a) and (b). What is the implication of the comparison? 9. An investor buys a stock for $36. At the same time a six month put option to sell the stock for $35 is selling for $2. a) What is the profit or loss from purchasing the stock if the price of the stock is $30, $35, or $40? b) If the investor also purchases the put (i.e., constructs a protective put) what is the combined cash outflow? c) If the investor constructs the protective put, what is the profit or loss if the price of the stock is $30, $35, or $40 at the put's expiration? At what price of the stock does the investor break even? d) What is the maximum potential loss and maximum potential profit from this protective put? e) If, after six months, the price of the stock is $37, what is the investor's maximum possible loss? Chapter 18: problems # 1, 12, & 16 (pg. 688 in the book) Apply the Black-Scholes option valuation model to solve the following problems. 1. A stock sells for $30. What is the value of a one-year call option to buy the stock at $25, if debt currently yields 10 percent? (Assume F(d1) and F(d2) =1.) 12. A put and a call have the following terms: Call: Strike price $30 Term Three months Price Strike price $30 Term Three months Price Put: $3 $4 The price of the stock is currently $29. You sell the stock short. Illustrate how to use the call or the put to reduce your risk exposure. a) What is the maximum possible profit on the position? b) What is the maximum possible loss on the position? c) What range of stock prices generates a profit? d) What advantage does this position offer? 16. As an executive, you received stock options that you recently exercised. However, you cannot legally sell the stock for the next six months. Currently the stock is selling for $38.25. A call to buy the stock at $40 is selling for $3.38 and a put to sell the stock at $35 is selling for $1.94. How could you use a collar to reduce your risk of loss from a decline in the price of the stock? Verify that the collar does not achieve its objective. Option strategies are not limited to covered puts and calls, protective puts and calls, straddles, bull and bear spreads, and collars. Other strategies include the \"strip\