. Now assume that the effective annual interest rate is 6.70%, which corresponds to a monthly interest rate of 0.54%. Calculate the present value of each call option's exercise price and the adjusted intrinsic value for each call option. (Do not round your intermediat calculations and round your final answers to 2 decimal places.) Company RJay RJay Sell-Mart Xenon Time to Expiration (months) 1 2 5 6 $ Strike 60 70 60 7.50 $ So 62.92 62.84 69.80 6.78 PV(X) Adjusted Intrinsic Value

. Now assume that the effective annual interest rate is 6.70%, which corresponds to a monthly interest rate of 0.54%. Calculate the present value of each call option's exercise price and the adjusted intrinsic value for each call option. (Do not round your intermediat calculations and round your final answers to 2 decimal places.) Company RJay RJay Sell-Mart Xenon Time to Expiration (months) 1 2 5 6 $ Strike 60 70 60 7.50 $ So 62.92 62.84 69.80 6.78 PV(X) Adjusted Intrinsic Value

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 8MC: Define the stated (quoted) or nominal rate INOM as well as the periodic rate IPER. Will the future...

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Company
RJay
RJay
Sell-Mart
Xenon
Time to Expiration
(months)
Company
RJay
RJay
Sell-Mart
Xenon
1 $
2
5
6
Time to Expiration
(months)
1
2
5
6
Strike
$
60
70
60
7.50
Strike
$
b. Now assume that the effective annual interest rate is 6.70%, which corresponds to a monthly interest rate of 0.54%. Calculate the
present value of each call option's exercise price and the adjusted intrinsic value for each call option. (Do not round your intermediate
calculations and round your final answers to 2 decimal places.)
So
60 $
70
60
7.50
62.92
62.84
69.80
6.78
So
Intrinsic Value
$
62.92
62.84
69.80
6.78
2.92
0.00
9.80
0.00
PV(X)
Adjusted Intrinsic Value

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a. Calculate the intrinsic value for each of the following call options. (Round your answers to 2 decimal places.) Company RJay RJay Sell-Mart Xenon Time to Expiration (months) RJay RJay Sell-Mart Xenon 1 2 Time to Company Expiration (months) 5 6 LO Strike 1 2 5 6 60 70 60 7.50 b. Now assume that the effective annual interest rate is 7.18%, which corresponds to a monthly interest rate of 0.58%. Calculate the present value of each call option's exercise price and the adjusted intrinsic value for each call option. (Round your answers to 2 decimal places.) Strike SO 60 70 60 7.50 62.77 62.57 67.80 6.48 Intrinsic Value SO 62.77 62.57 67.80 6.48 PV(X) Adjusted Intrinsic Value
For the following problem assume the effective 6-month interest rate is 2 %, the S&T 6-month forward price is $ 1020, and use the premiums listed below for S&T options with 6 month to expiration. Strike Call Put 950 120.405 51.777 1000 93.809 74.201 1020 84.47 84.47 1050 71.802 101.214 1107 51.873 137.167 Suppose you buy the S&T index for $ 1000 and buy a 950-strike put, and sell a 1107-strike call. Determine the profit for this position at the following S&T index spot prices at expiriry. When price is $ 925, the profit is $ When price is $ 950, the profit is $ When price is $ 975, the profit is $ ? When price is $ 1000, the profit is $ ? When price is $ 1025, the profit is $ ? When price is $ 1050, the profit is $ ? When price is $ 1075, the profit is $ ? When price is $ 1100, the profit is $ ? When price is $ 1125, the profit is $ ?
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For the following problem assume the effective 6-month interest rate is 2 %, the S-T 6-month forward price is $ 1020, and use the premiums listed below for S-T options with 6 month to expiration. Strike Call Put 950 120.405 51.777 1000 93.809 74.201 1020 84.47 1050 71.802 101.214 84.47 1107 51.873 137.167 1) Suppose you buy the S-T index for $ 1000 and buy a 950-strike put. Determine the profit for the following S-T index spot prices at expiry. When price is $ 925, the profit is $ ? When price is $ 950, the profit is $ When price is $ 975, the profit is $ When price is $ 1000, the profit is $ ? When price is $ 1025, the profit is $ ? When price is $ 1050, the profit is $ ? When price is $ 1075, the profit is $ ? When price is $ 1100, the profit is $ ? When price is $ 1125, the profit is $ ? 2) Suppose you buy a 950-strike call and invest $ 931.37 in zero-coupon bonds. Determine the profit for the following S-T index spot prices at expiry. When price is $ 925, the profit is $ When price…
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