A particular call is the option to buy stock at $25. It expires in six months an

Question

A particular call is the option to buy stock at $25. It expires in six months and currently sells for $3 when the price of the stock is $27.

What is the intrinsic value of the call? Round your answer to the nearest dollar.
$  
What is the time premium paid for the call? Round your answer to the nearest dollar.
$  

What will the value of this call be after six months if the price of the stock is $20, $25, $30, $40? Round your answer to the nearest dollar.

If the price of the stock rises to $40 at the expiration date of the call, what is the percentage increase in the value of the call? Round your answer to one decimal places.
  %
Does this example illustrate favorable leverage?

If an individual buys the stock and sells this call, what is the cash outflow (i.e., net cost)? Round your answer to the nearest dollar.
$  
What will the profit on the position be after six months if the price of the stock is $10, $15, $20, $25, $27, $30, $40? Round your answer to the nearest dollar.

If an individual sells this call naked, what will the profit or loss be on the position after six months if the price of the stock is $25, $27, $40? Round your answer to the nearest dollar.

Price of the stock Value of the call at expiration $20 $   25     30     40    

Explanation / Answer

What is the intrinsic value of the call? Round your answer to the nearest dollar.
Intrinsic value of a call is the difference between the current price of the stock and the strike price (specified in the option contract). Intrinsic value is $2.

What is the time premium paid for the call? Round your answer to the nearest dollar.
$  
Time premium (time value) is the rest of the current option price. That is, $1.

What will the value of this call be after six months if the price of the stock is $20, $25, $30, $40? Round your answer to the nearest dollar

In 6 months' time the option expires and its time value is zero. However, the option's total value never falls below zero. So the answers are zero, zero, $5, $15

If the price of the stock rises to $40 at the expiration date of the call, what is the percentage increase in the value of the call? Round your answer to one decimal

A rise from $3 to $15 will constitute about 127%. It is not clear what is meant by favorable leverage in this particular example

If an individual buys the stock and sells this call, what is the cash outflow (i.e., net cost)? Round your answer to the nearest dollar

Having bought the stock at $27 and sold the call at $3 leaves us with $24 cost at day

What will the profit on the position be after six months if the price of the stock is $10, $15, $20, $25, $27, $30, $40? Round your answer to the nearest dollar.

If an individual sells this call naked, what will the profit or loss be on the position after six months if the price of the stock is $25, $27, $40? Round your answer to the nearest dollar

Price of the stock Value at expiration $20 0 $25 0 $30 $5 $40 $15

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