Strike 102 112 The following quotes were observed for options on a given stock on June 10 of a given year. These are American calls except where indicated. 115 June 8.40 4.40 1.50 Calls Aug 10 7.10 3.90 Sep 11.50 8.30 5.30 June 5.30 0.90 2.80 Puts Aug 1.30 2.50 4.80 Sep 2.00 3.80 4.80 The stock price was 125. The risk-free rates were 7.30 percent (June), 7.50 percent (August) and 7.62 percent (September). Assume no dividends unless indicated. The expiration dates are June 21, Aug 15 and Sept 22.
1. Compute the intrinsic value and the time value and the lower bound of the following calls reat these
of as American options for the purpose of determining the intrinsic values and time values
and as European for the purpose of Lower bound
Sep with an Exercise price 115 and Aug with an Exercise price 112
2. Compute the intrinsic value and the time value and the lower bound of the following put. Treat these
as American options for the purpose of determining the intrinsic values and time value and as European
for the purpose of Lower bound
Sept with an Exercise price 102 and June with an Exercise price 112
3. Checks the following combinations of puts and calls and determine whether they conform to the put
call parity rule for the European options. If you see any violations suggest a strategy.
Aug with an Exercise price 112
4. Consider a hypothetical company with no risk. Will people will be willing to invest money in this
company if they expect no return? Why and why not?
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