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Given the Following Information

Question 84

Essay

Given the following information,
     Price of a stock                             $39
     Strike price of a six-month call     $35
     Market price of the call                 $8
     Strike price of a six-month put      $40
     Market price of the put                  $3
Finish the following sentences:

a. The intrinsic value of the call is _________.

b. The intrinsic value of the put is _________.

c. The time premium paid for the call is _________.

d. The time premium paid for the put is _________.

At the expiration of the options (i.e., after six months have lapsed), the price of the stock is $45.

e. The profit (loss)from buying the call is _______.

f. The profit (loss)from writing the call covered (i.e., buying the stock and selling the call)is ________.

g. The profit (loss)from buying the put is _______.

h. The profit (loss)from selling the stock short is ______.

i. The maximum possible loss from buying the put is ______.

j. At expiration, the maximum price commanded by a put or a call is _______.

Correct Answer:

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a. $39-$35=$4 b. $40-$39=$1 c. $8-$4=$2 ...

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