Potential development with respect to call option

Assignment Help Financial Management

Reference no: EM131020186

The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on Wade common shares on July 7, 2014, for $240. The call option is for 200 shares (notional value), and the strike price is $70. (The market price of a share of Wade stock on that date is $70.) The option expires on January 31, 2015. The following data are available with respect to the call option.

Date

September 30, 2014 December 31, 2014 January 4, 2015

Instructions

Market Price of Wade Shares

$77 per share 75 per share 76 per share

Time Value of Call Option

$180 65 30

Prepare the journal entries for Miller Co. for the following dates.

(a) July 7, 2014—Investment in call option on Wade shares.

(b) September 30, 2014—Miller prepares financial statements.

(d) January 4, 2015—Miller settles the call option on the Wade shares.

Reference no: EM131020186

Questions Cloud

Start saving for retirement plan : Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $69,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next yea..

The expected return on the investors portfolio : Assume an economy in which there are three securities: Stock A with rA = 10% and σA = 10%; Stock B with rB = 15% and σB = 20%; and a riskless asset with rRF = 7%. Stocks A and B are perfectly negativly correlated (rAB = -1). The expected return on th..

Relevant factor in division of asset during divorce planning : Which of the following is not a relevant factor in a division of assets during divorce planning

Consider potential reasons for returns : How would having information on the reason for returns and allowances and tracking these reasons help a business? Consider potential reasons for returns and what use the information can be in helping the company make decisions.

Potential development with respect to call option : The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on Wade common shares on July 7, 2014, for $240. The c..

Do you agree with this criticism of agency theory : Agency theory has been criticized for assuming that managers, left on their own, will behave in ways that reduce the wealth of outside equity holders when, in fact, most managers are highly responsible stewards of the assets they control. This altern..

What is the internal growth rate of eagle sport : The financial statements of Eagle Sport Supply are shown in the below table. For simplicity, “Costs” include interest. Assume that Eagle’s assets are proportional to its sales. Assume a growth rate of 35%. What is the internal growth rate of Eagle Sp..

How much is the monthly payment of her loan : A friend of yours just bought a new sports car. Her $35,000 car loan is financed at an interest rate of 0.75% per month for 48 months. How much is the monthly payment of her loan?

Calculating the present value and future value of lump sum : Describe in detail the differences and similarities in calculating the present value and future value of a lump sum, annuity, perpetuity and A series of unequal (multiple) cash flows.

User Account

All Pages