Mini Case Assume that you have just been hired as a financial analyst by Triple Trice Inc., a mid-sized California company that specializes in creating exotic dothing. Because no one at Triple Trice is familiar with the basics of financial options, you have been asked to prepare a brief report that the firm's executives can use to gain at least a cursory understanding of the topic To begin, you gathered some outside materials on the subject and used these materials to draft a list of pertinent questions that need to be answered. In fact, one possible approach to the paper is to use a question-and-answer format. Now that the questions have been drafted, you have to develop the answers. a What is a financial option? What is the single most important characteristic of an option? b. Options have a unique set of terminology. Define the following terms: (1) Call option (2) Put option (3) Exercise price (4) Striking, or strike, price (5) Option price (6) Expiration date (7) Exercise value (8) Covered option (9) Naked option (10) In-the-money call (11) Out-of-the-money call (12) LEAPS Consider Triple Trice's call option with a $25 strike price. The following table contains historical values for this option at different stock prices: Stock Price Call Option Price 525 $ 3.00 30 7.50 12.00 16.50 21.00 50 25.50 Intrinsic Value (1) Create a table that shows (a) stock price, (b) strike price, (c) exercise value, (d) option price, and (e) the time value, which is the option's price less its exercise value (2) What happens to the time value as the stock price rises? Why? 35 40 e. What impact does each of the following call option parameters have on the value of a call option? (1) Current stock price (2) Strike price (3) Option's term to maturity (4) Risk-free rate (5) Variability of the stock price f. What is put-call parity