Question

The price of a stock is $58. You can buy a six-month call at $57 for $4 or a six-month put at $57 for $2.

What is the intrinsic value of the call? Round your answer to the nearest dollar.
$   

What is the intrinsic value of the put? Round your answer to the nearest dollar.
$   

What is the time premium paid for the call? Round your answer to the nearest dollar.
$   

What is the time premium paid for the put? Round your answer to the nearest dollar.
$   

What is the maximum you could lose by selling the call covered? Round your answer to the nearest dollar.
$   

What is the maximum possible profit if you sell the stock short? Round your answer to the nearest dollar.
$  

After six months, the price of the stock is $65.

What is the value of the call? Round your answer to the nearest dollar.
$   

What is the profit or loss from buying the put? Round your answer to the nearest dollar.
-Select-Loss is the purchase priceProfit is the purchase priceItem 9 $   

If you had sold the stock short six months earlier, what would your profit or loss be? Round your answer to the nearest dollar.
-Select-The loss would beThe profit would beItem 11 $   

If you had sold the call covered, what would your profit or loss be? Round your answer to the nearest dollar.
-Select-The loss would beThe profit would beItem 13 $   

Answer 1

a) when underlying price = $58 and call strike price =$57 then call option is in the money as underlying price is greater than strike price

Intrinsic Value (Call) = Underlying Price – Strike Price = $58-$57 = $1

b) when underlying price = $58 and put strike price =$57 then put option is out of the money as underlying price is greater than strike price. For put option to exercise the underlying price should be less than strike price.

Intrinsic Value (Put) = Strike Price - Underlying Price = $0

c) Time premium paid for the call option = Premium - Instrinsic value = $4 -$1 = $3

d) Time premium paid for the put option = Premium - Instrinsic value = $2- $0 = $2