T-bills currently yield 4.2 percent. Stock in Nina Manufacturing is currently se
ID: 2782658 • Letter: T
Question
T-bills currently yield 4.2 percent. Stock in Nina Manufacturing is currently selling for $79 per share. There is no possibility that the stock will be worth less than $72 per share in one year a-1. What is the value of a call option with a $62 exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call option value a-2. What is the intrinsic value? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Intrinsic value b-1.What is the value of a call option with a $52 exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call option value b-2. What is the intrinsic value? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Intrinsic value c-1. What is the value of a put option with a $62 exercise price? (Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Put option value c-2.What is the intrinsic value? (Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Intrinsic valueExplanation / Answer
a)
Call option = Stock price - PV of strike price
Intrinsic value = Stock price - Strike price
call option = 79 - 62/(1+4.2%) = 19.50
Intrinsic value = 79 - 62 = 17
b)
call option = 79 - 52/(1+4.2%) = 29.10
Intrinsic value = 79 - 52 = 27
c)
Strike price < stock price , hence put option is out of the money
As it is out of the money, hence it wont have intrinsic value
Put option value = 0
Intrinsic value = 0
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