The common shares of Twitter, Incorporated (TWTR) recently traded on the NYSE for $67 per share. You have employee stock optionsto purchase 1,000 TWTR shares for $72 per share. The options expire in three years. Assume that the annualized volatility of TWTRstock is 57 percent and that the interest rate is 26 percent. (Assume the options are European options that may only be exercised atthe maturity date.)a. Is this option a call or a put?Call✔O Putb. Using an option pricing calculator such as the one atlerieri.com/blackscholes, estimate the value of your TWTR options.Note: Round your Intermediate calculations to 2 decimal places and final answer to nearest whole dollar.Value of your TWTR optionsc. What is the estimated value of the options if their maturity is six months instead of three years?Note: Round your Intermediate calculations to 2 decimal places and final answer to nearest whole dollar.Value of the options

An option is a financial contract that gives the holder the right, but not the obligation, to buy…

Answered: The common shares of Twitter,…

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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Buyer Company bought 100 options of Target Co one year ago and would like to exercise them today. The options were purchased at $24 each, and they expire when trading ends today (assume there is no speculative premium left.) Target common stock is selling today for $50 per share. The exercise price is $30 and each option entitles the holder to purchase two shares of stock, each at the exercise price. If the options are exercised today, what would Buyer Company’s dollar profit or loss be?
Assume you purchased the right to sell 2,000 shares of Target stock in February 2022 at a strike price of $240 per share. Suppose Target stock sells for $212 per share immediately before your options’ expiration. What is the rate of return on your investment? What is your rate of return if the stock sells for $268 per share (think about it)? Assume your holding period for this investment is exactly three months. Note: A negaive value should be indicated by a minus sign. Do not round intermediate calculations. Enter your 3-month returns as a percent rounded to 2 decimal places.
The common shares of Twitter, Incorporated (TWTR) recently traded on the NYSE for $75 per share. You have employee stock options to purchase 1,000 TWTR shares for $80 per share. The options expire in three years. Assume that the annualized volatility of TWTR stock is 65 percent and that the Interest rate is 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 erleri.com/blackscholes, estimate the value of your TWTR options. Note: Round your Intermediate calculations to 2 decimal places and final answer to nearest whole dollar. Value of your TWTR options c. What is the estimated value of the options if their maturity is six months Instead of three years? Note: Round your Intermediate calculations to 2 decimal places and final answer to nearest whole dollar. Value of the options d. What is the estimated value of the options if their…
A trader working for a financial institution sells 200 PUT option contracts (i.e. 20,000 options) on a certain stock. At the time of the initial trade, the option price is $10, and the corresponding delta is -0.46. At time 0, the trader neutralizes the delta of the options through either the purchase/sale of shares. Over the course of the next week, the stock price moves, resulting in a new delta of -0.54. How many shares should the trader buy to maintain a delta-neutral position? If the answer requires selling/shorting shares, enter a negative number for the number of shares to purchase. (required precision 0.01 +/- 0.01)
The stock of Bedrock Solutions is currently trading at $24.50 per share. The 1-month put option with strike price of 13.50 is currently selling for $2.16. What's the intrinsic value of this put option?
The stocks of Cee Mobile Limited is currently trading at $73 each. The call option on the company's stock has an exercise price of $70, with fifty (50) days remaining to expiration. It is assumed that the yield on treasury bills is currently 2%, while the volatility of the stock price is estimated as being 35%. Required: i. Using the Black-Scholes-Merton (BSM) model, calculate the value of the Call option, given the above parameters. Show all relevant workings. ii. Of the value computed, how much is the intrinsic value and the time value of the Call option? iii. Using the BSM model and the information given above, calculate the value of the Put option on the stock, with a similar strike price and days to expiration.
You own 100 shares of stock that are earning $2 per share per year. According to market analysts, the stock is expected to continue to earn $2 long into the future. Using the annuity rule, and assuming an interest rate of 6.5 percent, it follows that the present value of these 100 shares is: Multiple Choice O O O O $30.77. $307.79. $3,076.92. $30,076.92.
Today is January 3. Your friend David has just bought a futures contract on a stock index, and the contract specifies one year to expiration. The current share price is $80, and the annually compounded interest rate is 10%. The stock will pay quarterly dividends of $2 during the next year, with dividends payments on the following dates: January 25 April 25 July 25 October 25 Assume that this is a non-leap year. c. What is the value of this futures contract on February 17 if the spot price turns out to be $90 on that day? d. Suppose that, instead of paying a quarterly dividend of $2, the stock index has an annual dividend yield of 10%. The continuously compounded interest rate is 10.52%. What is the price of the index futures on January 3? What is its value on February 17 when the index turns out to be $90?
What is the volatility rate? (Use percentage and at least, two decimal places)
Baghiben
Mr. John Barker, who is a market maker at CBOE, notices the following quotes in his hand-held device. The price of Macrohard stock is $66 per share. The European call option on the stock, with strike price $70 and expiration date in six months, is quoted for $4 per share. The European put option on the same stock, with the same strike price and the same expiration date, is quoted for $5.5 per share. A dividend of 50 cents is expected in two months. The interest rate is 5%. A. Is there an arbitrage opportunity to Mr. John Barker? How much is the arbitrage profit per share of the stock? B. Describe your arbitrage strategy in words and then use a table to show the cash flows of your arbitrage strategy.
A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $36.2 and the risk-free rate of interest is 4% per annum (cont. comp). What is the value of the forward contract 8 months later if the price of the stock is $38.5 and the risk-free rate interest rate is still 4%. (round to the nearest 0.01)

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