The current price of a stock is $ 51.07 and the annual effective risk-free rate is 5.5 percent. A call option with an exercise price of $55 and one year until expiration has a current value of $ 1.03 . What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Show your answer to the nearest .01. Do not use $ or , in your answer. Because of the limitations of random numbers, some of the options may be trading below their intrinsic value or even less than 0. Hint, to find the present value of the bond, you do not need to make the e x adjustment, simple discount at the risk free rate.

Your Answer:

Question 1 options:

Answer

Question 2(10 points)

Suppose you believe that Du Pont's stock price is going to decline from its current level of $ 84.69 sometime during the next 5 months. For $ 1,083.52 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $ 83 per share. If you bought a 100-share contract for $ 1,083.52 and Du Pont's stock price actually changed to $ 70.35 , your net profit (or loss) after exercising the option would be ______? Show your answer to the nearest .01. Do not use $ or , signs in your answer. Use a - sign if you lose money on the contract.

Your Answer:

Question 2 options:

Answer

Question 3(10 points)

Suppose you believe that Du Pont's stock price is going to decline from its current level of $ 84.83 sometime during the next 5 months. For $ 464.42 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $ 76 per share. If you bought a 100-share contract for $ 464.42 and Du Pont's stock price actually changed to $ 84.27 at the end of five months, your net profit (or loss) after behaving rationally on the decision to exercise the option would be ______? Show your answer to the nearest .01. Do not use $ or , signs in your answer. Use a - sign if you lose money on the contract.

Your Answer:

Question 3 options:

Answer

Question 4(10 points)

Suppose you believe that Florio Company's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $85 per share. If you bought this option for $5.10 and Florio's stock price actually dropped to $60, what would your pre-tax net profit be?

Question 4 options:

-$5.10

$19.90

$20.90

$22.50

Question 5(10 points)

The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)

Question 5 options:

$2.43

$2.70

$2.99

$3.29

Question 6(10 points)

You wrote eight call option contracts with a strike price of $42.50 at a call price of $1.35 per share. What is your net gain or loss on this investment if the price of the underlying stock is $40.30 per share on the option expiration date?

Question 6 options:

-$2,840

-$1,760

-$1,080

$1,080

$1,760

Question 7(8 points)

If a company announces a change in its dividend policy from a zero target payout ratio to a 100% payout policy, this action could be expected to increase the value of long-term options (say 5-year options) on the firm's stock.

Question 7 options:

TrueFalse

Question 8(8 points)

Which of the following statements is most correct, holding other things constant, for XYZ Corporation's traded call options?

Question 8 options:

The higher the strike price on XYZ's options, the higher the option's price will be.

Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months.

If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend.

The price of these call options is likely to rise if XYZ's stock price rises

Question 9(8 points)

An option is a contract that gives its holder the right to buy or sell an asset at a predetermined price within a specified period of time.

Question 9 options:

TrueFalse

Question 10(8 points)

An option is a contract which gives its holder the right to buy or sell an asset at a predetermined price within a specified period of time.

Question 10 options:

TrueFalse

Question 11(8 points)

An option that gives the holder the right to sell a stock at a specified price at some future time is

Question 11 options:

a put option.

an out-of-the-money option.

a naked option.

a call option.