The exercise price on one of ORNE Corporation\'s call options is $35 and the pri

Question

The exercise price on one of ORNE Corporation's call options is $35 and the price of the underlying stock is $34. The option will expire in 55 days. The option is currently selling for $0.25.

a. Calculate the option's exercise value?

b. Calculate the value of the premium over and above the exercise value? What does this value represent?

c. Is this an out-of-the money option, at-the-money, or in-the-money? Why?

d. What will happen to the value of the option if the underlying stock price changes to $34.50? Why?

e. If this were a put option, would it have a greater or lesser value than the call option? Why?

Explanation / Answer

http://www.scribd.com/doc/72729235/Solutions-Lam-Pham

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