The price of one-year Country AM’s put option on Company XL’s stock. Introduction: The Country AM’s option is a form of option wherein the trader has the ability to exercise the option at any time. The stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks. An option is a contract to purchase a financial asset from one party and sell it to another party on an agreed price for a future date. There are two types of options, which are as follows: An option that buys an asset called call option An option that sells an asset called put option The intrinsic value of put-option is the value derived from deducting strike price from underlying price (present stock price).

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Chapter 20, Problem 24P

a)

Summary Introduction

To determine: The price of one-year Country AM’s put option on Company XL’s stock.

Introduction:

The Country AM’s option is a form of option wherein the trader has the ability to exercise the option at any time. The stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

An option is a contract to purchase a financial asset from one party and sell it to another party on an agreed price for a future date. There are two types of options, which are as follows:

An option that buys an asset called call option

An option that sells an asset called put option

The intrinsic value of put-option is the value derived from deducting strike price from underlying price (present stock price).

b)

Summary Introduction

To determine: The maximum price of one-year Country AM’s call option on Company XL’s stock.

Introduction:

The intrinsic value is the extra value given by the option price from the value of the underlying asset. The intrinsic value of a call-option is the value derived from deducting underlying price (present stock price) from strike price.

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