Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Textbook Question
Chapter 20, Problem 8P
You own a put option on Ford stock with a strike price of $10. The option will expire in exactly six months’ time.
- a. If the stock is trading at $8 in six months, what will be the payoff of the put?
- b. If the stock is trading at $23 in six months, what will be the payoff of the put?
- c. Draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.
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You own a call option on Intuit stock with a strike price of $34. When you purchased the option, it cost $6. The option
will expire in exactly three months' time.
a. If the shares are trading at $43 in three months, what will be the payoff of the call? What will be the profit of the call?
b. If the shares are trading at $31 in three months, what will be the payoff of the call? What will be the profit of the call?
c. Draw a payoff diagram showing the value of the call at expiration as a function of the share price at expiration.
d. Redo (c), but instead of showing payoffs, show profits.
a. The payoff of the call is $
(Round to the nearest dollar.)
and the profit of the call is $
You own a put option on Ford stock with a strike price of $11. When you bought the put, its cost
to you was $7. The option will expire in exactly six months' time.
a. If the stock is trading at $4 in six months, what will be the payoff of the put? What will be the
profit of the put?
b. If the stock is trading at $24 in six months, what will be the payoff of the put? What will be the
profit of the put?
c. Draw a payoff diagram showing the value of the put at expiration as a function of the stock
price at expiration.
d. Redo c, but instead of showing payoffs, show profits.
Assume you own a call option on IBM stock with a strike price of $40. The option will expire in exactly six months time.
If the stock is trading at $35 in six months, what will be the payoff of the call? Options for above is { $0.00 , $10,00 , $15.00 , $75.00 , $95.00 }
Assume that you have shorted the call option described above, if the stock is trading at $55 in six months, what will you owe?Options for above is { $0.00 , $10.00 , $15.00 , $75.00 , $95.00 }If the stock is trading at $50 in six months, what will be the payoff of the call?Options for above is { $0.00 , $10.00 , $15.00 , $75.00 , $95.00 }
Chapter 20 Solutions
Corporate Finance
Ch. 20.1 - What is the difference between an American option...Ch. 20.1 - Does the holder of an option have to exercise it?Ch. 20.1 - Prob. 3CCCh. 20.2 - What is a straddle?Ch. 20.2 - Explain how you can use put options to create...Ch. 20.3 - Explain put-call parity.Ch. 20.3 - If a put option trades at a higher price from the...Ch. 20.4 - What is the intrinsic value of an option?Ch. 20.4 - Can a European option with a later exercise date...Ch. 20.4 - How does the volatility of a stock affect the...
Ch. 20.5 - Is it ever optimal to exercise an American call on...Ch. 20.5 - When might it be optimal to exercise an American...Ch. 20.5 - Prob. 3CCCh. 20.6 - Explain how equity can be viewed as a call option...Ch. 20.6 - Explain how debt can be viewed as an option...Ch. 20 - Explain the meanings of the following financial...Ch. 20 - What is the difference between a European option...Ch. 20 - Prob. 3PCh. 20 - Prob. 4PCh. 20 - Prob. 5PCh. 20 - You own a call option on Intuit stock with a...Ch. 20 - Assume that you have shorted the call option in...Ch. 20 - You own a put option on Ford stock with a strike...Ch. 20 - Assume that you have shorted the put option in...Ch. 20 - What position has more downside exposure: a short...Ch. 20 - Prob. 11PCh. 20 - You are long both a call and a put on the same...Ch. 20 - You are long two calls on the same share of stock...Ch. 20 - A forward contract is a contract to purchase an...Ch. 20 - You own a share of Costco stock. You are worried...Ch. 20 - Dynamic Energy Systems stock is currently trading...Ch. 20 - You happen to be checking the newspaper and notice...Ch. 20 - Prob. 20PCh. 20 - Prob. 21PCh. 20 - Prob. 22PCh. 20 - Prob. 23PCh. 20 - Prob. 24PCh. 20 - Prob. 25PCh. 20 - Prob. 26PCh. 20 - Prob. 27PCh. 20 - Prob. 28PCh. 20 - Prob. 30PCh. 20 - Prob. 31P
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- Bhaarrow_forwardAssume you own a call option on Yahoo stock with a strike price of $40. The option will expire in exactly three months time. If the stock is trading at $55 in three months time, what will be the payoff of the call?arrow_forwardYou shorted a call option on Intuit stock with a strike price of $38. When you sold (wrote) the option, you received $3. The option will expire in exactly three months' time. a. If the stock is trading at $49 in three months, what will your payoff be? What will your profit be? b. If the stock is trading at $35 in three months, what will your payoff be? What will your profit be? c. Draw a payoff diagram showing the payoff at expiration as a function of the stock price at expiration. d. Redo c, but instead of showing payoffs, show profits. Question content area bottom Part 1 a. The payoff of the short is $ short is $ enter your response here. enter your response here, and the profit of the. Please step by step answer.arrow_forward
- solve a,b,c and d please. round to nearest dollararrow_forwardsolve a,b,c and d please. Round to the nearest dollararrow_forwardConsider a put option whose underlying asset is a stock index with 6 months to expiration and a strike price of $1000. Suppose the risk-free interest rate for the six months is 2% and that the option’s premium is $74.20. (a) Find the future premium value in six months. (b) What is the buyer’s profit is the index spot price is $1100? (c) What is the buyer’s profit is the index spot price is $900 Only typed answerarrow_forward
- Suppose that currently, stock BVC is trading at $100 per share. A put option with a strike price of $120 that expires in one year is selling at $11.12. What is the profit to a trader who buys this put option, assuming that in one year the stock price of BVC is $125arrow_forwardAssuming that a September put option to buy a share for $100 costs $4.50 and is held until September. Under what circumstances will the holder of this option make a profit? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.arrow_forwardround to nearest dollararrow_forward
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