Question

The time value of a call option is

I) the difference between the option's price and the value it would have if it were expiring immediately.

II) the same as the present value of the option's expected future cash flows.

III) the difference between the option's price and its expected future value.

IV) different from the usual time value of money concept.

Answer #1

**Answer : Both I and IV are correct .**

Reason :

Time value of Call Option is the difference between the option's price and the value it would have if it were expiring immediately and Time value of call option is not same concept as time value of money concept.. Therefore Both Option I) the difference between the option's price and the value it would have if it were expiring immediately and Option IV) different from the usual time value of money concept. are correct Options

(TCO I) In a bear market, which option positions make
money?
I. Buying a call
II. Writing a call
III . Buying a put
IV. Writing a put
I and II
I and III
I and IV
II and III
I and IV

Consider a call option on a stock, the stock price is $29, the
strike price is $30, the continuously risk-free interest rate is 5%
per annum, the volatility is 20% per annum and the time to maturity
is 0.25.
(i) What is the price of the option? (6 points)
(ii) What is the price of the option if it is a put? (6
points)
(iii) What is the price of the call option if a dividend of $2
is expected...

You are attempting to value a call option with an exercise price
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dividends, its current price is $107, and you believe it has a 50%
chance of increasing to $125 and a 50% chance of decreasing to $89.
The risk-free rate of interest is 8%. Calculate the call option’s
value using the two-state stock price model.
Call Option's Value:

You are attempting to value a call option with an exercise price
of $55 and one year to expiration. The underlying stock pays no
dividends, its current price is $55, and you believe it has a 50%
chance of increasing to $85 and a 50% chance of decreasing to $25.
The risk-free rate of interest is 6%. Based upon your assumptions,
calculate your estimate of the the call option's value using the
two-state stock price model. (Do not round intermediate...

1.A call option on the stock of Bedrock Boulders has a market
price of $7. The stock sells for $30 a share, and the option has an
strike price of $25 a share. What is the exercise value of the call
option? What is the option's time value? SHOW ALL YOUR WORK
2.The current price of a stock is $15. In 6 months, the price
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the price...

Which one of the following are zero-coupon bonds?
I) Treasury bill
II) Treasury note
III) Treasury bond
IV) Commercial paper
V) Agency bonds
I, V
I, II, III
I, IV, V
II, III
I, IV
You buy a call option on Citibank with the strike price of 100.
Suppose the Citibank's stock price is 110 on the option expiration
date. What is your payoff?
0.
10.
20.
-10.
-20.
According the lectures, what one of the following signals can be...

The Poisson distribution might be used to describe, estimate, or
model which of the following? (I) A customer service call center
might use the Poisson distribution to describe the behavior of
incoming calls over different time periods. (II) A website might
use the Poisson distribution to estimate the likelihood of some
number of individuals logging onto the site between the hours of
noon and 1:00pm EST. (III) A mining company might use it to model
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6) The main idea behind the time value of money is that: 6)
_______
A) cash received in year 3, say, $80,000, has the same value as
$40,000 received in year 3 plus $40,000 received in year 4.
B) cash payments made in the future have the same value as
payments made today.
C) cash flows received in the distant future are less valuable
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D) cash flows received in different years are...

Answer the following questions given the following call option
prices on Google (GOOG) and on Apple (APPL). Note that these are
actual option prices on 2/21/13 and these contracts have 60 days
till expiration. The 2-month T-bill rate is about 4.75%. Attach all
work with your report.
OPTION
STRIKE
EXP
VOL
LAST
GOOG
800
APR
378
28.20
S=795.53
690
APRI
53
101.57
APPL
450
APR
530
18.55
S=446.06
480
APR
856
7.81
Part One
Estimate the theoretical option values for...

Instructions:
You are required to show the following 4 steps for each problem
: (i) Develop the timeline (linear representation of the timing of
cash flows) (ii) Identify the time value of money variable (PV, FV,
PMT, N or Rate) which needs to be calculated in the question. (iii)
Identify the values of the remaining four variables (PV, FV, PMT, N
or Rate) from the question. Be sure to input positive or negative
signs. (iv) Calculate the correct value of...

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