fin 516 homework week 2
Problem 20-6 on Call Options based on Chapter 20
(Excel file included)
You own a call option on Intuit stock with a strike price of $40. The option will expire in exactly 3 months’ time.
a. If the stock is trading at $55 in 3 months, what will be the payoff of the call?
• Payoff-max=(50-s) = max (55-40)=15 the Ford owner will gain $15
b. If the stock is trading at $35 in 3 months, what will be the payoff of the call?
• Payoff-max=(35-s) = max (35-40)=-5 the owners will gain $-5
c. Draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration.
Payoff Stock Price
15 55
-5
Problem 20-8 on Put Options based on Chapter 20
(Excel file included)
You own a put option on Ford stock with a strike price of $10. The option will expire in exactly 6 months’ time.
a. If the stock is trading at $8 in 6 months, what will be the payoff of the put?
• Payoff-max=(10-s)=max (10-8) the owner of put option will gains $2
b. If the stock is trading at $23 in 6 months, what will be the payoff of the put?
• Payoff-max=(10-s)=max (10-23)=-13 the owner of put option will loses $13
c. Draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.
Cashflow
$10.00
$10.00 stock price
Problem 20-11 on Return on Options based on Chapter 20
Consider the September 2012 IBM call and put options in Problem 20-3. Ignoring any interest you might earn over the remaining few days’ life of the options, consider the following.
a. Compute the break-even IBM stock price for each option (i.e., the stock price at which your total profit from buying and then exercising the option
9/12 200.00 (ibm-1222/200-E) 6.26 1.96 6.45 6.65 193 6898 0.23 -0.42 0.19
9/12 205.00 (ibm-1222/205-E) 2.35 1.14 2.36 2.49 1800 7390 1.1 -1.35 1.03
9/12 210.00 (ibm-1222/210-E) 0.32 0.15 0.36 0.42 508 2818 4.15 -2.5 3.95
9/12 215.00 (ibm-1222/215-E) 0.06 0.03 0.04 0.08 36
(Excel file included)
You own a call option on Intuit stock with a strike price of $40. The option will expire in exactly 3 months’ time.
a. If the stock is trading at $55 in 3 months, what will be the payoff of the call?
• Payoff-max=(50-s) = max (55-40)=15 the Ford owner will gain $15
b. If the stock is trading at $35 in 3 months, what will be the payoff of the call?
• Payoff-max=(35-s) = max (35-40)=-5 the owners will gain $-5
c. Draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration.
Payoff Stock Price
15 55
-5
Problem 20-8 on Put Options based on Chapter 20
(Excel file included)
You own a put option on Ford stock with a strike price of $10. The option will expire in exactly 6 months’ time.
a. If the stock is trading at $8 in 6 months, what will be the payoff of the put?
• Payoff-max=(10-s)=max (10-8) the owner of put option will gains $2
b. If the stock is trading at $23 in 6 months, what will be the payoff of the put?
• Payoff-max=(10-s)=max (10-23)=-13 the owner of put option will loses $13
c. Draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.
Cashflow
$10.00
$10.00 stock price
Problem 20-11 on Return on Options based on Chapter 20
Consider the September 2012 IBM call and put options in Problem 20-3. Ignoring any interest you might earn over the remaining few days’ life of the options, consider the following.
a. Compute the break-even IBM stock price for each option (i.e., the stock price at which your total profit from buying and then exercising the option
9/12 200.00 (ibm-1222/200-E) 6.26 1.96 6.45 6.65 193 6898 0.23 -0.42 0.19
9/12 205.00 (ibm-1222/205-E) 2.35 1.14 2.36 2.49 1800 7390 1.1 -1.35 1.03
9/12 210.00 (ibm-1222/210-E) 0.32 0.15 0.36 0.42 508 2818 4.15 -2.5 3.95
9/12 215.00 (ibm-1222/215-E) 0.06 0.03 0.04 0.08 36