Find the value of the call options held by Johnson Ltd

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Reference no: EM132452835

Problem - Johnson Ltd plans to buy 8,500 shares in BHP on 30 June 20X7 but is worried that the share price will rise significantly before then. On 1 May 20X5, Johnson buys 8,500 BHP call options for $4.20 each. These options have an exercise price of $32 per share and mature on 30 June 20X7. Johnson marks-to-market its derivatives each year on its 30 June balance date. Assume that there are no transactions costs and that the relevant share prices and options prices are as below:

30 June 2015 - Share Price (31) - FV Option (4.35)

30 June 2016 - Share Price (30.5) - FV Option (2.50)

30 June 2017 - Share Price (34.75) - FV Option (2.75)

Required - On 30 June 20X7, find the value of the call options held by Johnson Ltd?

a) $8,500

b) $18,000

c) $23,375

d) $292,500

e) $312,750

Reference no: EM132452835

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