You are given the following information concerning options on a particular stock

Question

You are given the following information concerning options on a particular stock: Stock price = $51 Exercise price = $50 Risk-free rate = 5% per year, compounded continuously Maturity = 6 months Standard deviation = 38% per year a. What is the intrinsic value of each option? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations.) Value Call option $ Put option $ b. What is the time value of each option? (Do not round intermediate calculations and round your final answers to 2 decimal places (e.g., 32.16).) Value Call option $ Put option $

Explanation / Answer

Solution A

Intrinsic value of call option = maximum (current price – exercise price, 0)

                                                       = maximum (51-50, 0)

                                                       = 1

Intrinsic value of Put option = maximum (exercise price- current price, 0)

                                                       = maximum (50-51, 0)

                                                       = 0

Solution B

Time value = option premium – intrinsic value

Please provide option premium for both call and put options to calculate time value.

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