Exam 21: Option Applications and Corporate Finance

Suppose you purchase a call option for $5 and a strike price of $40. On the expiration day, the price of the stock is $55. What is the return on the call option if you hold your position until maturity?

Luther Industries is currently trading for $27 per share. The stock pays no dividends. A one-year European put option on Luther with a strike price of $30 is currently trading for $2.60. If the risk-free interest rate is 6% per year, then the price of a one-year European call option on Luther with a strike price of $30 will be closest to ________.

Use the table for the question(s)below. Consider the following information on options from the CBOE for Merck: -How many of the January 2009 call options are in-the-money?

You pay $3.25 for a call option on Luther Industries that expires in three months with a strike price of $40.00. Three months later, at expiration, Luther Industries is trading at $41.00 per share. Your profit per share on this transaction is closest to ________.

According to put-call parity, which of the following would cause the value of a call option to decrease?

The payoff to the holder of a put option is ________.

Suppose that a stock sells at a price of $40 on the expiration date. Compute the payoff to the seller of a put option if the option strike price is $50.

Use the figure for the question below. -This graph depicts the payoffs of a ________.

Suppose that a stock sells at a price of $10 on the expiration date. Compute the price of a call option if the option strike price is $20.

An options contract gives the owner the ________ but not the ________ to buy or sell an asset at a fixed price at some future date.

The holder of a put option has ________.

A put option gives the owner the right to ________ an asset at a fixed price at some future date.

When the exercise price of a call option is lower than the current price of the stock, the option is said to be ________.

________ options allow the holder to exercise the option only on the expiration date.

Although the payouts on a long position in an options contract are never negative, the profit from purchasing and holding it could be negative.

KD Industries stock is currently trading at $32 per share. Consider a put option on KD stock with a strike price of $30. The maximum value of this put option is ________.

Suppose that a stock sells at a price of $60 on the expiration date. Compute the payoff to the seller of a put option if the option strike price is $20.

You have shorted a call option on WSJ stock with a strike price of $50. The option will expire in exactly six months. If the stock is trading at $45 in three month, what will you owe for each share in the contract?

What is the long position of an options contract?

Suppose that a stock sells at a price of $60 on the expiration date. Compute the payoff to the seller of a call option if the option strike price is $20.