Question 1

A call option has a premium of $0.60,a strike price of $40,and 3 months to expiration.The current stock price is $39.60.The stock will pay a $0.80 dividend two months from now.The risk-free rate is 3 percent.What is the premium on a 3-month put with a strike price of $40? Assume the options are European style.

Accepted Answer

Put option price = $0.60 - $39.60 + 0.80 / (1.03)^{2 / 12} + $40 / (1 + 0.03)^{1 / 4} = $1.50

Question 2

A stock is currently selling for $26.50.A 3-month put option with a strike price of $30 has an option premium of $4.05.The risk-free rate is 2.5 percent and the market rate is 9.75 percent.What is the option premium on a 2-month call with a $30 strike price? Assume the options are European style.

Accepted Answer

Call option price = $26.50 - $30 / (1 + 0.03)^{3 / 12} + $4.05 = $0.73

Question 3

A stock is valued at $25.80 a share.A European 3-month call option has a strike price of $25 and an option premium of $1.40.The market rate is 9.5 percent and the risk-free rate is 3.25 percent.What is the price of a European 3-month put option with a $25 strike price?

Accepted Answer

Put option price = $1.40 - $25.80 + $25 / (1 + 0.0325)^{1 / 4} = $0.401

Question 4

A 3-month put has a strike price of $45.00 and an option premium of $1.10.The underlying stock is selling for $45.80 per share.What is the time value of the put?

Accepted Answer

Time value = $1.10 - ($45.00 - $45.80) = $1.90

Question 5

Jenny purchased 2 put option contracts on Winslow Mfg.stock.The option premium was $0.80 and the strike price was $37.50.On the expiration date,the stock was selling for $38.00 a share.What is the total payoff on the option contracts?

Accepted Answer

Payoff = $0; The stock price exceeds the put strike price.

Question 6

A European call has a strike price of $37.50.The underlying stock's price is $38.20.What is the lower price bound of this call?

Accepted Answer

Lower call price bound = $38.20 - $37.50 = $0.70

Question 7

A 4-month call has a strike price of $20.The current underlying stock price is $21.45.What is the intrinsic value of this call?

Accepted Answer

Intrinsic value = $21.45 - $20.00 = $1.45

Question 8

You own 200 shares of Delta stock which is currently worth $33 a share.You just paid an option premium of $0.55 to buy two put contracts on this stock with a strike price of $30.What is the maximum loss per share you are avoiding by purchasing the option contract?

Accepted Answer

Maximum loss = Strike price = $30 a share

Question 9

A call option with 1 month to expiration currently sells for $0.70.A put option with the same expiration sells for $1.10.The options are European style.The risk-free rate is 3 percent and the strike price of both options is $18.00.What is the current stock price?

Accepted Answer

Stock price = $0.70 - $1.10 + $18.00 / (1 + 0.03)^{1 / 12} = $17.56

Question 10

You purchased a put with a strike price of $37.5 and an option premium of $0.45.You simultaneously bought the stock at a price of $36 a share.What is your profit per share on these transactions if the stock price at expiration is $33.50?

Accepted Answer

Profit per share = $37.50 - $36 - $0.45 = $1.05

Question 11

A 4-month,$25 call option on Teller stock has an option premium of $0.25.The 4-month,$25 put option has an option premium of $0.80.The risk-free rate is 3 percent.The options are European-style.What is the price of Teller stock?

Accepted Answer

Stock price = $0.25 - $0.80 + $25 / (1 + 0.03)^{4 / 12} = $24.20

Question 12

What is the total option premium you will receive if you sell 5 June $25.00 calls on Texas Instruments?

Accepted Answer

Call premium = 5 × 100 × $6.50 = $3,250

Question 13

A call option with 6 months to expiration currently sells for $2.05.A put option with the same expiration sells for $0.60.The options are European style.The risk-free rate is 3.0 percent and the strike price of both options is $50.What is the current stock price?

Accepted Answer

Stock price = $2.05 - $0.60 + $50 / (1 + 0.03)^{6 / 12} = $50.72

Question 14

A European 3-month call has a strike price of $35.The stock price is currently $34.30.What is the lower price bound on this call?

Accepted Answer

Lower call price bound = $0, because the call is out-of-the money

Question 15

A 3-month put has a strike price of $50.The underlying stock's price is $48.75.What is the intrinsic value of this put?

Accepted Answer

Intrinsic value = $50.00 - $48.75 = $1.25

Question 16

A 6-month put has a strike price of $32.50.The underlying stock's price is $31.10.What is intrinsic value of this put?

Accepted Answer

Intrinsic value = $32.50 - $31.10 = $1.40

Question 17

A stock is currently selling for $20.65.A 3-month call option with a strike price of $20 has an option premium of $1.30.The risk-free rate is 2 percent and the market rate is 8 percent.What is the option premium on a 3-month put with a $20 strike price? Assume the options are European style.

Accepted Answer

Put option price = $1.30 - $20.65 + $20 / (1 + 0.02)^{3 / 12} = $0.55

Question 18

A call option has a premium of $1.95,a strike price of $45,and 3 months to expiration.The current stock price is $42.20.The stock will pay a $1.15 dividend in one month.The risk-free rate is 2.5 percent.What is the premium on a 3-month put with a strike price of $45? Assume the options are European style.

Accepted Answer

Put option price = -$42.20 + $1.15 / (1.025)^{1 / 12} + $45 / (1 + 0.025)^{3 / 12} + $1.95 = $5.62

Question 19

You own three SPX put options with a strike of 1,850.What is the payoff at maturity for this option contract if the S&P 500 index is 1,862?

Accepted Answer

The payoff = $0; the option will not be exercised.

Question 20

A 6-month call has a strike price of $30.The underlying stock is priced at $31.80 and the option premium on the call is $2.40.What is the per share time value of the call?

Accepted Answer

Time value = $2.40 - ($31.80 - $30) = $0.60

Quiz 15: Stock Options