T-bills currently yield 3.7 percent. Stock in Nina Manufacturing is currently se
ID: 2658192 • Letter: T
Question
T-bills currently yield 3.7 percent. Stock in Nina Manufacturing is currently selling for $56 per share. There is no possibility that the stock will be worth less than $50 per share in one year.
What is the value of a call option with a $45 exercise price? (Round the final answer to 2 decimal places.)
What is the value of a call option with a $35 exercise price? (Round the final answer to 2 decimal places.)
T-bills currently yield 3.7 percent. Stock in Nina Manufacturing is currently selling for $56 per share. There is no possibility that the stock will be worth less than $50 per share in one year.
Explanation / Answer
a-1) Call option value Stock price - PV of exercise price $ 12.61 =56-45/(1+3.7%) a-2) Intrinsic value Stock price - Exercise price $ 11.00 =56-45 b-1) Call option value Stock price - PV of exercise price $ 22.25 =56-35/(1+3.7%) b-2) Intrinsic value Stock price - Exercise price $ 21.00 =56-35 c-1) Put option value Option will not be excercised 0 c-2) Intrinsic value Option will not be excercised 0
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