Lecture 5 Tutorial OPTION MARKETS ANDCONTRACTS Use the following information to answer Questions 1 to 13: Current market price of ABC stock =$77 ABC stock price after 30 days =$80 ABC stock price after 45 days =$95 ABC stock price after 60 days =$80 ABC stock price after 75 days =$85 ABC: stock price after 90 days $70 Current price of European call on ABC stock with exercise price of $93 with 90 days to expiration = $2 Current price of European put on ABC stock with exercise price of $82 with 60 days to expiration = $6 Risk-free rate 5% 1. The payoff to the put option holder on Day 30 is ciosest to: A. Zero B. $2 C. $2 2. The payoff to the eall option holder on Day 90 is closest to: A. Zero B. $23 C. $21 3. The payoff to the put option writer on Day 60 is closest to: A. Zero B. $2 C. $4 4. The payoff to the call option writer on Day 90 is ciosest to: A. Zero B. $23 C. $21 5. The put option holder's profit on his position is closest to: A. $6 B. $2 C. $4 6. The call option holder's profit on his overall position is closest to: A. Zero B. $21 C. $2 7. At current prices, the call option is most likely: A. In-the-money B. At-the-money C. Out-of-the-money 8. At t=30, the put option is most likely: A. In-the-money B. At-the-money C. Out-of-the-money 9. Most of the call option premium is most likely composed of: A. Intrinsic value B. Time value C. Cannot be determined 10. Most of the put option premium is most likely composed of: A. Intrinsic value B. Time value C. Cannot be determined 11. The price of a European call option with an exercise price of $82 and 30 days remaining expiration would be closest to: A. $1.33 B. $4.90 C. $1.03 12. At t=45, the minimum value of the call option is closest to: A. $2.56 B. $2 C. $0 13. At t=45, the minimum value of the put option is closest to: A. $0 B. $13 C. $13.16 Use the following information to answer Questions 35 to 37 : A European put option with an exercise price of $100 and 3 months till maturity is trading at $4 when the underlying stock is trading at $97. The risk free rate equals 5%, 35. All other factors remaining the same, the value of a fiduciary call most likely: A. Cannot be determined given the information B. Equals $101 C. Equals $1 36. All other factors remaining the same, the value of a European call is most likely: A. Cannot be determined given the information. B. $1 C. $2.21 37. All other factors remaining the same, the value of an American put option is least likely: A. $3 B. $4 C. $4.05 Use the following information to answer Questions 38-43 ABC Company's current stock price is $100. The risk-free rate is 4%. 38. The payoff to the holder of a call option on ABC with an exercise price of $200 is closest to: A. $100 if stock price at option expiration equals $200 B. Zero if stock price at option expiration equals $100 C. $40 if stock price at option expiration equals $160 39. The payoff to the holder of a put option on ABC with an exercise price of $200 is closest to: A. $100 if stock price at option expiration equals $200 B. Zero if stock price at option expiration equals $100 C. $40 if stock price at option expiration equals $160 40. Consider a scenario where Annie writes a put option on ABC with an exercise price of $225. If ABC stock price at option expiration equals $125, Annie will most likely: A. Exercise the option. B. Have a negative payoff of $100. C. Let the option expire without exercising it. 41. Consider a scenario where Arthur writes a call option on ABC with an exercise price of $225. If ABC stock price at option expiration equals $215, Arthur will most likely: A. Exercise the option. B. Have a payoff of zero. C. Let the option expire without exercising it. 42. The maximum value of a European put option with an exercise price of $50 and 6 months remaining till expiration is closest to: 43. The minimum value of an American call option with an exercise price of $80 and 6 months till expiration is closest to: A. $20 B. $100 C. $21.55
