Question 1: The following are simple questions to test your basic understanding of options. In the following, the options you're considering are for shares of Barkhouse Inc., and are European in form. The current price of Barkhouse's stock is $100. a) A call option with strike price of $120 has a price (premium) of $.50 per share: i. Is the option, in-, at- or out-of-the money? ii. What is the intrinsic value of this option? ii. What is the time value of this option? iv. Prepare a payout chart for this option showing the payout at expiration for a long position in the option. (I ENCOURAGE YOU TO COMBINE THE ANSWERS TO iv., v., vi., and vii., ON A SINGLE CHART- save the trees and all that...) Prepare a payout chart for this option showing the payout at expiration for the writer of the option v. vi. Prepare a profit and loss chart for a long position in this option. vii. Prepare a profit and loss chart for a short position in this option. b) A put option with a strike price of $120 has a price (premium) of $21.50 per share: i. Is the option, in-, at- or out-of-the money? ii. What is the intrinsic value of this option? iii. iv. What is the time value of this option? Prepare a payout chart for this option showing the payout at expiration for a long position in the option. (I ENCOURAGE YOU TO COMBINE THE ANSWERS TO iv., v., vi., and vii., ON A SINGLE CHART - save the trees and all that...) Prepare a payout chart for this option showing the payout at expiration for the writer of the option Prepare a profit and loss chart for a long position in this option. Prepare a profit and loss chart for a short position in this option v. vi. c) A call option with a strike price of $80 has a price (premium) of $12.80 per share i. Is the option, in-, at- or out-of-the money? ii. What is the intrinsic value of this option? iii. What is the time value of this option? iv. Prepare a payout chart for this option showing the payout at expiration for a long position in the option. (I ENCOURAGE YOU TO COMBINE THE ANSWERS TO iv., v., vi., and vii., ON A SINGLE CHART- save the trees and all that...) v. Prepare a payout chart for this option showing the payout at expiration for the writer of the option vi. Prepare a profit and loss chart for a long position in this option. vii. Prepare a profit and loss chart for a short position in this option d) A put option with a strike price of $80 has a price (premium) of $.40 per share Is the option, in-, at- or out-of-the money? ii. what is the intrinsic value of this option? ii. What is the time value of this option? iv. Prepare a payout chart for this option showing the payout at expiration for a long position in the option. (I ENCOURAGE YOU TO COMBINE THE ANSWERS TO iv., v., vi., and vii., ON A SINGLE CHART - save the trees and all that...) v. Prepare a payout chart for this option showing the payout at expiration for the writer of the option vi. Prepare a profit and loss chart for a long position in this option. vii. Prepare a profit and loss chart for a short position in this option e) Suppose you form a portfolio of 3 long calls, strike of $90 and premium of $13 each: 3 short calls, strike of $110 and premium of $3.50 each and 1 long call, strike of $135 and premium of $.50. i. Prepare a payout chart for this portfolio of options showing the payout at expiration. Does this chart have a structure similar to a chart seen in an earlier class in Entrepreneurial Finance? ii. Question 1: The following are simple questions to test your basic understanding of options. In the following, the options you're considering are for shares of Barkhouse Inc., and are European in form. The current price of Barkhouse's stock is $100. a) A call option with strike price of $120 has a price (premium) of $.50 per share: i. Is the option, in-, at- or out-of-the money? ii. What is the intrinsic value of this option? ii. What is the time value of this option? iv. Prepare a payout chart for this option showing the payout at expiration for a long position in the option. (I ENCOURAGE YOU TO COMBINE THE ANSWERS TO iv., v., vi., and vii., ON A SINGLE CHART- save the trees and all that...) Prepare a payout chart for this option showing the payout at expiration for the writer of the option v. vi. Prepare a profit and loss chart for a long position in this option. vii. Prepare a profit and loss chart for a short position in this option. b) A put option with a strike price of $120 has a price (premium) of $21.50 per share: i. Is the option, in-, at- or out-of-the money? ii. What is the intrinsic value of this option? iii. iv. What is the time value of this option? Prepare a payout chart for this option showing the payout at expiration for a long position in the option. (I ENCOURAGE YOU TO COMBINE THE ANSWERS TO iv., v., vi., and vii., ON A SINGLE CHART - save the trees and all that...) Prepare a payout chart for this option showing the payout at expiration for the writer of the option Prepare a profit and loss chart for a long position in this option. Prepare a profit and loss chart for a short position in this option v. vi. c) A call option with a strike price of $80 has a price (premium) of $12.80 per share i. Is the option, in-, at- or out-of-the money? ii. What is the intrinsic value of this option? iii. What is the time value of this option? iv. Prepare a payout chart for this option showing the payout at expiration for a long position in the option. (I ENCOURAGE YOU TO COMBINE THE ANSWERS TO iv., v., vi., and vii., ON A SINGLE CHART- save the trees and all that...) v. Prepare a payout chart for this option showing the payout at expiration for the writer of the option vi. Prepare a profit and loss chart for a long position in this option. vii. Prepare a profit and loss chart for a short position in this option d) A put option with a strike price of $80 has a price (premium) of $.40 per share Is the option, in-, at- or out-of-the money? ii. what is the intrinsic value of this option? ii. What is the time value of this option? iv. Prepare a payout chart for this option showing the payout at expiration for a long position in the option. (I ENCOURAGE YOU TO COMBINE THE ANSWERS TO iv., v., vi., and vii., ON A SINGLE CHART - save the trees and all that...) v. Prepare a payout chart for this option showing the payout at expiration for the writer of the option vi. Prepare a profit and loss chart for a long position in this option. vii. Prepare a profit and loss chart for a short position in this option e) Suppose you form a portfolio of 3 long calls, strike of $90 and premium of $13 each: 3 short calls, strike of $110 and premium of $3.50 each and 1 long call, strike of $135 and premium of $.50. i. Prepare a payout chart for this portfolio of options showing the payout at expiration. Does this chart have a structure similar to a chart seen in an earlier class in Entrepreneurial Finance