Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 20, Problem 21P
Suppose Amazon stock is trading for $500 per share, and Amazon pays no dividends.
- a. What is the maximum possible price of a call option on Amazon?
- b. What is the maximum possible price of a put option on Amazon with a strike price of $550?
- c. What is the minimum possible value of a call option on Amazon stock with a strike price of $475?
- d. What is the minimum possible value of an American put option on Amazon stock with a strike price of $550?
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Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held untilmaturity. Under what circumstances will the holder of the option make a profit? Underwhat circumstances will the option be exercised? Draw a diagram illustrating how the profitfrom a long position in the option depends on the stock price at maturity of the option.
Suppose that a European put option to sell a share for $60 costs $8 and is held untilmaturity. Under what circumstances will the seller of the option (the party with the shortposition) make a profit? Under what circumstances will the option be exercised? Draw adiagram illustrating how the profit from a short position in the option depends on thestock price at maturity of the option.
Suppose Amazon’s stock is trading for $530 per share, and Amazon pays no dividends.
What is the maximum possible price of a call option on Amazon?
What is the maximum possible price of a put option on Amazon with a strike price of$585?
iii. What is the minimum possible value of a call option on Amazon stock with a strike price of $505?
iv. What is the minimum possible value of an American put option on Amazon stock with a strike price of $600?
Suppose that a European call option to buy a share for $ 90.00 costs
a . Under what circumstances will the SELLER of the option make a profit ? \$4.00 and is held until maturity . ( DRAW the GRAPH to show ALL answers )
b . when will the option be exercised ( at what price , show on graph ) ?
c . What is the Maximum profit for SELLER and at what stock price ?
d . What is the Maximum loss for SELLER and at what stock price ?
e . What will be profit / loss for SELLER if St is 150 ?
Chapter 20 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 20.1 - What is the difference between an American option...Ch. 20.1 - Does the holder of an option have to exercise it?Ch. 20.1 - Prob. 3CCCh. 20.2 - What is a straddle?Ch. 20.2 - Explain how you can use put options to create...Ch. 20.3 - Explain put-call parity.Ch. 20.3 - If a put option trades at a higher price from the...Ch. 20.4 - What is the intrinsic value of an option?Ch. 20.4 - Can a European option with a later exercise date...Ch. 20.4 - How does the volatility of a stock affect the...
Ch. 20.5 - Is it ever optimal to exercise an American call on...Ch. 20.5 - When might it be optimal to exercise an American...Ch. 20.5 - Prob. 3CCCh. 20.6 - Explain how equity can be viewed as a call option...Ch. 20.6 - Explain how debt can be viewed as an option...Ch. 20 - Explain the meanings of the following financial...Ch. 20 - What is the difference between a European option...Ch. 20 - Below is an option quote on IBM from the CBOE Web...Ch. 20 - Prob. 4PCh. 20 - Prob. 5PCh. 20 - You own a call option on Intuit stock with a...Ch. 20 - Assume that you have shorted the call option in...Ch. 20 - You own a put option on Ford stock with a strike...Ch. 20 - Assume that you have shorted the put option in...Ch. 20 - What position has more downside exposure: a short...Ch. 20 - Consider the October 2015 IBM call and put options...Ch. 20 - You are long both a call and a put on the same...Ch. 20 - You are long two calls on the same share of stock...Ch. 20 - A forward contract is a contract to purchase an...Ch. 20 - You own a share of Costco stock. You are worried...Ch. 20 - Dynamic Energy Systems stock is currently trading...Ch. 20 - You happen to be checking the newspaper and notice...Ch. 20 - In mid-February 2016, European-style options on...Ch. 20 - Suppose Amazon stock is trading for 500 per share,...Ch. 20 - Consider the data for IBM options in Problem 3....Ch. 20 - You are watching the option quotes for your...Ch. 20 - Explain why an American call option on a...Ch. 20 - Consider an American put option on XAL stock with...Ch. 20 - The stock of Harford Inc. is about to pay a 0.30...Ch. 20 - Suppose the SP 500 is at 900, and a one-year...Ch. 20 - Suppose the SP 500 is at 900, and it will pay a...Ch. 20 - Prob. 29PCh. 20 - Suppose that in July 2009, Google were to issue 96...
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- You buy a put option on IBM common stock. The option has an exercise price of $136 and IBM’s stock currently trades at $140. The option premium is $5 per contract.a. What is your net profit on the option if IBM’s stock price increases to $150 at expiration of the option and you exercise the option? b. How much of the option premium is due to intrinsic value versus time value?c. What is your net profit if IBM’s stock price decreases to $130?d. Draw the payout diagram at maturity on a short put option position, option premium = $2, and the same exercise price... (Please give the full solution I will upvote)arrow_forwardAssume a stock is selling for GH¢48.50 with options available at 40, 50, and 60 strike prices.The 50 call option price is at 2.75.a. What is the intrinsic value of the 50 call?b. Is the 50 call in the money?c. Are the 40 and 60 call options in the money?arrow_forwardSuppose that a European put option to sell a share for $20.00 costs $1.00. Assume the price of the underderlying stock at expiration is S on the expiration date. Under what circumstances should the holder excercise the option. With what price the holder will make profitarrow_forward
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