Tyco International currently has a stock price of $27. it also has eight options
ID: 2750675 • Letter: T
Question
Tyco International currently has a stock price of $27. it also has eight options available with the following expiration date. Strike price (exercise price) and option price. For example you can buy a june 30 put for 3.50 (or you could sell it for 3.50). The risk free rate is 2% between now and June and 4% between now and september.
1. What is the time value of june 30 put option
a. $0 b. .50 c 1.09 d3.00.
2. How could you earn a risk - free profit using the sept 30 put option?
a. buy the stock and the put, sell the bond and the call
b. buy the stock and the call. sell the bond and the put
c. buy the bond and the put, sell the stock and the call
d. buy the bond and the call, sell the stock and the put
3. Suppose you sold june 25th call option and the stock price ends up being $26. how much is your total profit or loss (including the selling of the option)?
a. $1 loss b. $1 profit c.$ 2 profit d. $3 profit
expiration Month strike price discounted value call price put price June 25 24.51 3 June 30 29.41 3.50 Sept 25 24.04 1 Sept 30 28.85 2 4.15Explanation / Answer
(1) Time value of June 30 put option = $3.50 - ($29.41-$27) = $3.50-$2.41 = $1.09
(2) buy the bond and the call, sell the stock and the put
(3) $3 profit
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