You took a long position in a call option on DBS’s share. The option premium is $7 per contract and the option has an exercise price of $25. DBS’s share is currently trading at $30. (a) Calculate how much of the option premium is due to intrinsic value and how much is due to time value (b) Calculate the net profit on the option if DBS’s share price increases to $40 and you exercise the option. (c) Calculate net profit if DBS’ share price decreases to $20.
You took a long position in a call option on DBS’s share. The option premium is $7 per contract and the option has an exercise price of $25. DBS’s share is currently trading at $30. (a) Calculate how much of the option premium is due to intrinsic value and how much is due to time value (b) Calculate the net profit on the option if DBS’s share price increases to $40 and you exercise the option. (c) Calculate net profit if DBS’ share price decreases to $20.
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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You took a long position in a call option on DBS’s share. The option premium is $7 per contract and the option has an exercise price of $25. DBS’s share is currently trading at $30.
(a) Calculate how much of the option premium is due to intrinsic value and how much is due to time value
(b) Calculate the net profit on the option if DBS’s share price increases to $40 and you exercise the option.
(c) Calculate net profit if DBS’ share price decreases to $20.
(d) Compute the Theoretical ex-rights Price (TERP) of SIA.
(e) If you are a shareholder of SIA, what are your options with regards to the rights issued to you?
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