Question

# Use the option quote information shown here to answer the questions that follow. The stock is...

 Use the option quote information shown here to answer the questions that follow. The stock is currently selling for \$75.

 Calls Puts Option and NY Close Expiration Strike Price Vol. Last Vol. Last RWJ Mar 70 245 4.70 175 4.80 Apr 70 185 10.55 142 9.55 Jul 70 154 11.40 58 13.10 Oct 70 75 12.30 26 11.95
a-1. Are the call options in the money?
 In Out
 a-2. What is the intrinsic value of an RWJ Corp. call option? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
 Intrinsic value \$

b-1. Are the put options in the money?
 In Out
 b-2. What is the intrinsic value of an RWJ Corp. put option contract? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
 Intrinsic value \$

c.

Two of the options are clearly mispriced. Which ones? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

 Mar call Apr call Oct call Mar put Oct put Apr put

Call option is the right to buy a specified security at a specified price on a future date

Put option is the right to buy a specified security at a specified price on a future date

Call options are in the money when strike price is lower than the market price

a-1 IN

a-2 Intrinsic Value = Market Price – Strike Price = \$75-\$70 = \$5

b-1 Put options are in the money when market price is lower than the strike price

OUT

b-2 Intrinsic Value = higher of Strike price – market price,0

= \$0

c.Mispriced options are:

March Call: Since option premium = intrinsic value + time value, it should not be less than \$5

Oct Put: Since expiry is at later date, premium should be higher than July Put premium

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