The following tables presents the data on ABC Corp.\'s call options at different

Question

The following tables presents the data on ABC Corp.'s call options at different stock prices. Based on your understanding of exercise value and option prices, complete the table with a strike price of $20.00: Exercise Value Value Stock Price Strike Price Market Price of Option ($) 21.56 62.10 82.40 92.60 104.00 Time Value 40.00 80.00 100.00 110.00 120.00 20.00 20.00 20.00 20.00 20.00 20.00 2.10 2.40 90.00 4.00 After two weeks, the stock price of ABC Corp. increases to $132.00. Suppose you purchased the shares for $80.00 and then sell the shares at $132.00; your rate of return will be on that transaction After your analysis, you decided to purchase the option for $62.10, which gives you the right to buy ABC Corp.'s stock at $20.00. If you exercise the option by purchasing the stock at the strike price, you could immediately sell the share of the stock at its market price of $132.00. This will result in a payoff, and the rate of return on your option will be Answer the following questions, based on your understanding of options, option price, and exercise value True or False: An option's price wil always be greater than (or equal to) its exercise value This statement is True or False: Corporations on whose stocks options are traded in the option market are directly involved in the process, and it helps them raise additional funds This statement is True or False: If you hold a put option and the current stock price is more than the exercise price, you would lose money by exercising the option; therefore, rather than exercising it, you'd just let the option expire This statement is

Explanation / Answer

Exercise Value

1.= 80-20=60

2.=100-20=80

3.=120-20=100

TTime Value

1=21.56-20=1.56

2=92.6-90=2.6

Rate of return=132-80/80*100=65%

1. FALSE

2. FALSE

3. True

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