It is July 2019, and you are contemplating the purchase of a call option on TD stock. The call has a January 2020 expiration date and an exercise price of $58. TD's stock price is currently around $58, so the option will be valueless unless the stock price appreciates over the next 6 months. Suppose that by the end of January 2020 the price of TD stock could double to $116 or halve to $29. The annual interest rate is 0.625%. a. What would be the value of the TD call in January 2020 if the stock price is $116? Value of the TD call $ b. What would be the value of the call if the stock price in January is $29? Value of the TD call $ c. A strategy of buying 3 calls provides exactly the same payoffs as borrowing the present value of $2 from the bank and buying 232 shares. What is X? Value of X $ d. What is the net cash flow in July 2019 from the policy of borrowing PV($x) and buying 2 shares? (Round your answer to 2 decimal places.) Net cash flow $ e. What is the value of the call option? (Round your answer to 2 decimal places.) Value of the call option $ f. By assuming greater stock volatility, whether the value of the option increases or decreases? Higher stock price volatility (Click to select) v the value of the call. It is July 2019, and you are contemplating the purchase of a call option on TD stock. The call has a January 2020 expiration date and an exercise price of $58. TD's stock price is currently around $58, so the option will be valueless unless the stock price appreciates over the next 6 months. Suppose that by the end of January 2020 the price of TD stock could double to $116 or halve to $29. The annual interest rate is 0.625%. a. What would be the value of the TD call in January 2020 if the stock price is $116? Value of the TD call $ b. What would be the value of the call if the stock price in January is $29? Value of the TD call $ c. A strategy of buying 3 calls provides exactly the same payoffs as borrowing the present value of $2 from the bank and buying 232 shares. What is X? Value of X $ d. What is the net cash flow in July 2019 from the policy of borrowing PV($x) and buying 2 shares? (Round your answer to 2 decimal places.) Net cash flow $ e. What is the value of the call option? (Round your answer to 2 decimal places.) Value of the call option $ f. By assuming greater stock volatility, whether the value of the option increases or decreases? Higher stock price volatility (Click to select) v the value of the call
