The common shares of Twitter, Inc. (TWTR) recently traded on the NYSE for $21.10 per share. You have employee stock options to purchase 1,000 TWTR shares for $19.9 per share. The options expire in three years. Assume that the annualized volatility of TWTR stock is 88.0 percent and that the interest rate is 2.3 percent. (Assume the options are European options that may only be exercised at the maturity date.) a. Is this option a call or a put? O Call O Put b. Using an option pricing calculator such as the one at erieri.com/blackscholes, estimate the value of your TWTR options. (Round your answer to nearest whole number.) Value of your TWTR options c. What is the estimated value of the options if their maturity is six months instead of three years? (Round your answer to nearest whole number.) Value of the options

The common shares of Twitter, Inc. (TWTR) recently traded on the NYSE for $21.10 per share. You have employee stock options to purchase 1,000 TWTR shares for $19.9 per share. The options expire in three years. Assume that the annualized volatility of TWTR stock is 88.0 percent and that the interest rate is 2.3 percent. (Assume the options are European options that may only be exercised at the maturity date.) a. Is this option a call or a put? O Call O Put b. Using an option pricing calculator such as the one at erieri.com/blackscholes, estimate the value of your TWTR options. (Round your answer to nearest whole number.) Value of your TWTR options c. What is the estimated value of the options if their maturity is six months instead of three years? (Round your answer to nearest whole number.) Value of the options

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

Problem 1PS

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Stock options, gold options and index options are examples of options where the underlying assets are stocks, gold and stock market index, respectively. What is the difference between European and American option? Are European options available exclusively in Europe and American options available exclusively in the United States? You own a call option on Intuit stock with a strike price of RM36. The option will expire in exactly three months’ time. If the stock is trading at RM46 in three months, what will be the payoff of the call? If the stock is trading at RM32 in three months, what will be the payoff of the call? Draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration. Suppose that a June put option to sell a share for RM10 costs RM2 and is held until June. Under what circumstances will the seller of the option make a profit? Under what circumstances will the option exercised?
Consider a stock in two periods (two years). The stock price goes up by 30% or down by 10%in each period. Current stock price is $100. There is a European put option on the stock withexercise price $110 and time to maturity of two years. The interest rate in each period is 6%. Inthe template, Date 0 denotes today, Date 1 denotes the end of year 1 and Date 2 denotes the endof year 2. Use the two-period binomial tree model and discrete discounting to find the put optionprice on Date 0.
A stock is selling today for $110. The stock has an annual volatility of 64 percent and theannual risk-free rate is 7 percent.a. Calculate the fair price for a 1-year European call option with an exercise price of $95.b. Calculate how much the current stock price would need to change for the purchaser ofthe call option to break even in one year.c. Calculate the fair price for a 1 year European put option with an exercise price of $95
A company's stock currently sells for $131.55. A one-year European put option on that stock with strike price of $140 sells for $22.1, and the risk free interest rate is 1.07%. The market expects the company to pay dividends during that period, and the market consensus is that present value of those dividends is $3.52. The price of a one-year European call option on that stock with strike price of $140 is $ (Note i: answer must be accurate to the nearest cent). (Note ii. Use annual compounding NOT exponential compounding for the purpose of this question).
Suppose that on 27 October 2022, Wall Street Journal in New York presents the following price for 27 March 2023 call options on Microsoft stock (in $ USA) strike 75 80 85 price 11 7.96 5.5 while the annual interest rate is 4% per year. On this date (27 October 2022) the Microsoft stock was trading at $81.625. Suppose we decide that the volatility of the market is 30%. Should you buy the call option as the European one with strike price $80? Justify your answer.
The current price of a non-dividend-paying stock is$57.14and you expect the stock price to either go up by a factor of 1.152 or down by a factor of 0.868 over the next 0.5 years. A European call option on the stock has a strike price of$57and expires in 0.5 years. The risk-free rate is6%(annual, continuously compounded). 1. What is the option payoff if the stock price goes up? 2. What is the risk-neutral probability of an up movement?3.What is the value of the option?
In January 2023 Apple shares are priced at $200 a share. You believe that they are considerably overvalued and are worth only $120 a share. June 2023 put options on a strike price of $210 a share is currently valued at $18 per share. Each put contract is based on 100 shares. (i) What is the intrinsic value of the put option per share? Explain your reasoning. (ii) What is the time value of the put option per share? (iii) If we arrive at expiry in June and you are proved correct with Apple shares selling for $120, what is your total net dollar profit (+) or loss (-) on a single put option contract in dollars bearing in mind the put option is based on a contract of 100 shares? (iv) What will be the total cash settlement by the option writer if the Apple share price expires at $120 per share in June 2023? (v) What is your net dollar profit (+) or loss (-) as a holder of the put contract (based on a contract size of 100 shares) if we arrive at expiry in June and you are wrong and Apple…
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On January 1 2021 you buy shares of an s&p index ETF at $370 each. You are concerned about the possible drop in value of the large cap equities before year end. The S&P 500 currently is at $4,669. You decide to buy an at-the – money put option on the s&p 500 index to insulate your portfolio from a decline in equity prices. Each put ( assume one put per ETF share)is prived at $56 and expires on 31 december. If the s&p is at $4680 on 31 december an dyour ETF position is priced at $468, what is the annualized percent return on entire investment in the ETF, including the put
Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?
Assume a stock has a value of $100. The stock is expected to pay a dividend of $2 per share at year-end. An at-the-money European-style put option with one-year maturity sells for $7. If the annual interest rate is 5%, what must be the price of a 1-year at-the-money European call option on the stock?

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