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Tembo holds a one-year put option on Shoprite common stock. The put option can be exercised at K50. Assume that the expiration date has arrived and the premium is K3. What is the value of the Shoprite put option on the expiration date if: i. Shoprite common stock is selling at K56 per share? ii. Shoprite common stock is selling at K45 per share?

Tembo holds a one-year put option on Shoprite common stock. The put option can be exercised at K50. Assume that the expiration date has arrived and the premium is K3. What is the value of the Shoprite put option on the expiration date if: i. Shoprite common stock is selling at K56 per share? ii. Shoprite common stock is selling at K45 per share?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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***** ayout References Mailings Review View Help A A Aa abc X₂ X² AA- 3 - 12 - Font E D F3 ii. 4 iii. x $ F4 a) Tembo holds a one-year put option on Shoprite common stock. The put option can be exercised at K50. Assume that the expiration date has arrived and the premium is K3. What is the value of the Shoprite put option on the expiration date if: i. Shoprite common stock is selling at K56 per share? ii. Shoprite common stock is selling at K45 per share? b) A trader buys a call option on a share for K2. The stock price is K25 and the strike price is K20, i. State the circumstances under which the trader will make a profit. I R GFS640-AASIGNMENT 2022-2 [Compatibility Mode] - Word AEE (5 F ES % 5 State the circumstances under which the option will be exercised. F5 T G Activate L Draw a diagram in support of your answers above, showing the variation Go to Setting A Paragraph LO 6 + 21 ¶ F6 a ABC Y Tell me what you want to do HUAWEI H O & 7 W AaBbCcDd AaBbCcDd AaBbC AaBbCc 1 Normal 1 No Spac. Heading 1 Heading 2 U J F7 8 F8 ( 9 Styles K O F9 ) D Mulenga i 0 F10 P P
Transcribed Image Text:***** ayout References Mailings Review View Help A A Aa abc X₂ X² AA- 3 - 12 - Font E D F3 ii. 4 iii. x $ F4 a) Tembo holds a one-year put option on Shoprite common stock. The put option can be exercised at K50. Assume that the expiration date has arrived and the premium is K3. What is the value of the Shoprite put option on the expiration date if: i. Shoprite common stock is selling at K56 per share? ii. Shoprite common stock is selling at K45 per share? b) A trader buys a call option on a share for K2. The stock price is K25 and the strike price is K20, i. State the circumstances under which the trader will make a profit. I R GFS640-AASIGNMENT 2022-2 [Compatibility Mode] - Word AEE (5 F ES % 5 State the circumstances under which the option will be exercised. F5 T G Activate L Draw a diagram in support of your answers above, showing the variation Go to Setting A Paragraph LO 6 + 21 ¶ F6 a ABC Y Tell me what you want to do HUAWEI H O & 7 W AaBbCcDd AaBbCcDd AaBbC AaBbCc 1 Normal 1 No Spac. Heading 1 Heading 2 U J F7 8 F8 ( 9 Styles K O F9 ) D Mulenga i 0 F10 P P
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Given Information:

Exercise price of put option is K50

Put premium is K3

Time period is 1 years

To Find:

  • Value of put option at Stock price K56
  • Value of put option at Stock price K45
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