Question 1

In a financial statement of the firm, put and call options ________.

Accepted Answer

Put and call options do not have a direct impact on the financial statements of the firm, therefore they have no influence on cash management policy, capital structure decision, or bond financing. However, the value of these options may be included as part of the firm's total assets or liabilities in the financial statements.

Question 2

If an investor buys a 100-share put option for $150 with an exercise price of $38 and the underlying price per share of the stock at expiration is $39, what is the amount of profit or loss, ignoring brokerage fees?

Accepted Answer

The investor has purchased a put option, which gives them the right to sell shares at $38. If the stock price at expiration is $39, the put option is out of the money and the investor will not exercise their right to sell. They will instead lose the premium they paid for the option, which in this case is $150. Therefore, there is a loss of $150.

Question 3

Nico Yong is considering the purchase of 100 shares of Cisco Systems stock at $22 per share. Because the economy is picking up, Nico believes the demand for Oracle's router systems will increase substantially causing the price of Cisco's shares to increase to $30 per share. As an alternative, Nico is considering the purchase of a call option for 100 shares of Cisco at with an exercise price of $25. This 180 day option will cost Nico $200. Assume no brokerage costs or dividends.
(a) What will Nico's profit be on the stock transaction if he decides to buy the stock and its price does increase to $30 per share and he sells?
(b) How much will Nico earn on the option transaction if he purchases the option and the underlying stock price rises to $30?
(c) How much must the stock price rise for Nico to break even on the option transaction?
(d) Based on parts (a) and (b) above, what should Nico do? Explain.

Accepted Answer

The answer of Nico Yong is considering the purchase of...

Question 4

Consider the following options data:  (a) Determine the amount of profit or loss associated with each option, ignoring brokerage fees.
(b) Differentiate a warrant from a right.

Accepted Answer

The answer of Consider the following options data:  (a)...

Question 5

If an investor buys a 100-share call option for $325 with an exercise price of $15 and the underlying price per share of the stock at expiration is $13, what is the amount of profit or loss, ignoring brokerage fees?

Accepted Answer

If the investor exercises the option, they would be buying 100 shares of the stock at $15 per share, which would cost them $1,500. However, since the current market price is only $13 per share, the investor would have a loss of $200 per share, or $20,000 for the entire position. Therefore, taking into account the cost of the option ($325), the total loss would be $20,325.

Quiz 17: Hybrid and Derivative Securities

In a financial statement of the firm, put and call options ________.

If an investor buys a 100-share put option for $150 with an exercise price of $38 and the underlying price per share of the stock at expiration is $39, what is the amount of profit or loss, ignoring brokerage fees?

Consider the following options data: (a) Determine the amount of profit or loss associated with each option, ignoring brokerage fees. (b) Differentiate a warrant from a right.

If an investor buys a 100-share call option for $325 with an exercise price of $15 and the underlying price per share of the stock at expiration is $13, what is the amount of profit or loss, ignoring brokerage fees?