long position in a call option on IBM common stock

Assignment Help Financial Management
Reference no: EM131513621

You have taken a long position in a call option on IBM common stock. The option has an exercise price of $155 and IBM's stock currently trades at $159. The option premium is $7 per contract. a. How much of the option premium is due to intrinsic value versus time value? Option Premium Intrinsic value $ Time value b. What is your net profit on the option if IBM’s stock price increases to $169 at expiration of the option and you exercise the option? (Negative amount should be indicated by a minus sign.) Net profit $ per share c. What is your net profit if IBM’s stock price decreases to $149? (Negative amount should be indicated by a minus sign.) Net profit $ per share

Reference no: EM131513621

Questions Cloud

Calculate the intrinsic value of the call option : Calculate the intrinsic value of the call option.
What are the pico variables : Formulate a preliminary PICO question-one that is answerable-based on your analysis. What are the PICO variables.
Calculate your net profit on the option : Calculate your net profit on the option if Kimberly Clark’s stock price does not change over the life of the option.
Compute the displacement : For the truss in Figure P8.3, compute the horizontal and vertical components of the displacement of joint C. The area of all bars = 2500 mm2, and E = 200 GPa.
long position in a call option on IBM common stock : You have taken a long position in a call option on IBM common stock. What is your net profit if IBM’s stock price decreases to $149?
What are portfolio weights of each stock : what are the portfolio weights of each stock?
Will the frame sway horizontally : The pin-connected frame in Figure P8.3 is subjected to two vertical loads. Compute the vertical displacement of joint B. Will the frame sway horizontally?
Should the bank go long or short on the futures contracts : Should the bank go long or short on the futures contracts?
Dividend initiation and stock value : Dividend Initiation and Stock Value A firm does not pay a dividend. compute the value of this stock.

Reviews

Write a Review

Financial Management Questions & Answers

  After the phase-out for high-income taxpayers

Ellen and Rick are married with one dependent child. They have AGI of $355,300, and itemized deductions consisting of $20,000 state income taxes and $20,000 medical expenses, after applying the 10 percent of AGI limitation.  Itemized deductions allow..

  Calculate the firms degree of operating leverage

Carolina Fastener, Inc., makes a patented marine bulkhead latch that wholesales for $6.12. Each latch has variable operating costs of $3.42. Fixed operating costs are $49,600 per year. Calculate Carolina Fastener's operating breakeven point. Calculat..

  Assume perfect capital markets and no taxation

A company's debt is given by a bond that will mature in two years. After two years the company will terminate all activity. The company unlevered equity value in two years can be $17 millions with a 50% probability or $14 millions with probability 50..

  Example of an unsecured debt

Cash advance (convenience) checks can be used for which of the following purchases. Which of the following is an example of an unsecured debt?

  Using the liquidity premium theory

Based on economists’ forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 1.30% E(2r1) = 2.45% L2 = 0.05% E(3r1) = 2.55% L3 = 0.10% E(4r1) = 2.85% L4 = 0.12% Using the l..

  No-arbitrage determination of forward price

By using the information above and applying the Cost-of-Carry Model, verify if there is an arbitrage opportunity. Step (2) In addition, clearly explain and illustrate the arbitrage (“Cash-and-Carry”) strategy and compute the arbitrage profit.

  The option creates portfolio that is gamma neutral

A portfolio of derivatives on a stock has a delta of 2400 and a gamma of –100. An option on the stock with a delta of 0.6 and a gamma of 0.04 can be traded. What position in the option creates a portfolio that is gamma neutral? Give size of position ..

  What is a private equity firm

What is the agency problem between stockholders and managers and describe the data used by the researcher in the analysis.

  What is the appropriate cost for retained earnings

What is the appropriate cost for retained earnings in determining the firm's cost of capital?

  Debt–equity ratio for this company based on market values

Kiedis Corp. has interest bearing debt with a market value of $75.9 million. The company also has 1.6 million shares that sell for $26 per share. What is the debt–equity ratio for this company based on market values?

  Assuming all of the synergy will to its stockholders

In early 2006 Giant Inc's management was considering making an offer to buy Micro Corporation. Micro's projected operating income (EBIT) for 2006 was $30 million, but Giant believes that if the two firms were merged, it could consolidate some operati..

  Calculating future values-investment strategy

Calculating Future Values. You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn a 10.1 percent rate of return and make no additional contributions, what will your account be worth when you retire ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd