Question

OPTION PROBLEM – 6 PARTS Show your work and label your answers in the space provided...

OPTION PROBLEM – 6 PARTS Show your work and label your answers in the space provided on the MSExcel answer sheet Assume that you have purchased 1 call option on Arizona Tea Co. stock with an exercise price of $45. At that time of your purchase the stock was trading for $48.50 per share and the option price was 5.25 per share.

A. How much will it cost you to purchase this option, in total?

B. Is this option in the money?

C. What is the intrinsic value of this option at the time of purchase? On the expiration date, the stock is selling for $49.90 a share.

D. What is the payoff to this option at expiration?

E. If you exercise this option on expiration day, what is your profit or loss on the trade, in dollars?

F. What is the profit or loss on your option investment, in percent?

Homework Answers

Answer #1

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