Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The price of a stock is $ 6 4 , and a six - month call with a strike price of $ 6 2 sells

The price of a stock is $64, and a six-month call with a strike price of $62 sells for $4. Round your answers to the nearest dollar.
a. What is the option's intrinsic value?
$
b. What is the option's time premium?
$
c. If the price of the stock falls, what happens to the price of the call?
As the price of the stock falls, the value of the call
d. If the price of the stock falls to $43, what is the maximum you could lose from buying the call? Enter your answer as a positive value.
$
e. What is the maximum profit you could earn by selling the call covered?
$
f. If, at the expiration of the call, the price of the stock is $67, what is the profit (or loss) from buying the call? Enter your answer as a positive value.
The
from buying the call is $
g. If, at the expiration of the call, the price of the stock is $67, what is the profit (or loss) from selling the call covered? Enter your answer as a positive value.
The
| from selling the call covered is $
h. If, at the expiration of the call, the price of the stock is $44, what is the profit (or loss) from buying the call? Enter your answer as a positive value.
The
from buying the call is $
i. If, at the expiration of the call, the price of the stock is $44, what is the profit (or loss) from selling the call covered? Enter your answer as a positive value.
The
from selling the call covered is $
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions