8-1 Options A call option on the stock of Bedrock Boulders has a market price of $6. The stock sells for $30 a share, and the option has a strike price of $25 a share. What is the exercise value of the call option? $ What is the option's time value?
8-2 Options The exercise price on one of Flanagan Company's options is $14, its exercise value is $21, and its time value is $5. What are the option's market value and the price of the stock? Option's market value $ Price of the stock $
8-3 Black-Scholes Model Assume that you have been given the following information on Purcell Industries: Current stock price = $14 Strike price of option = $14 Time to maturity of option = 4 months
Risk-free rate = 8% Variance of stock return = 0.14 d1 = 0.231455 N(d1) = 0.591519 d2 = 0.01543 N(d2) = 0.506156 According to the Black-Scholes option pricing model, what is the option's value? Round your answer to the nearest cent. $
8-4 Put-Call Parity The current price of a stock is $33, and the annual risk-free rate is 3%. A call option with a strike price of $32 and 1 year until expiration has a current value of $5.20. What is the value of a put option written on the stock with the same exercise
price and expiration date as the call option? Round your answer to the nearest cent. $
8-6 Binomial Model The current price of a stock is $20. In 1 year, the price will be either $27 or $14. The annual risk-free rate is 4%. Find the price of a call option on the stock that has a strike price is of $23 and that expires in 1 year. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume 365-day year. Do not round your intermediate calculations. $
8-7 Binomial Model The current price of a stock is $16. In 6 months, the price will be either $18 or $12. The annual risk-free rate is 3%. Find the price of a call option on the stock that has an strike price of $13 and that expires in 6 months. (Hint: Use daily compounding.) Round your answer to the nearest cent. Assume a 365-day year. Do not round your intermediate calculations. $
Chapter 8
you have been given the following information on a call option on the stock of Puckett Industries:
P = $65 X = $70
t = 0.5 rRF = 5% e-rRFt = 0.975309912
s = 50.00% 0.975309749
a. Using the Black-Scholes Option Pricing Model, what is the value of the call option?
b. Suppose there is a put option on Puckett's stock with exactly the same inputs as the call option. What is the value of the put?
