User Account

All Pages

What is the intrinsic value of your puts per share

Assignment Help Financial Management
Reference no: EM131848631

You believe the announced takeover of HUM (Humana) will fall through so you bought puts for 1,000 shares with a strike price of $165/share. They expire on May 20, 2016. The current price of HUM is $182.54/share. You paid $5.59/share for the puts for a total of $5,590.

a. Are your puts ATM, OTM, or ITM, and by how much?

b. What is the intrinsic value of your puts per share? What is the time value of your puts per share?

c. Happy Days! The would-be buyer of Humana, United Health is indicted by the Feds for price fixing. HUM stock falls to $150/share. Your puts are now trading at $19.00/share. Are your puts now ITM, ATM, or OTM, and by how much?

d. This is exactly what you hoped for, and do not believe the stock will fall further. In fact you are worried it might rise if the deal doesn’t collapse. Since your puts are American, you can exercise them immediately. If you did, you would be selling HUM for $165/share. You would need to buy shares in the market at $150/share to deliver for your sale. What would be your all-in profit per share and in total, including the cost of your puts?

e. Instead of exercising your puts what other action could you take? What would be your profit in that case?

Reference no: EM131848631

Questions Cloud

Describe the patients personal and medical history : Describe the patient's personal and medical history, drug therapy and treatments, and follow-up care. Then explain the implications of patient's health problem.
What is the pre-regulation equilibrium quantity and price : a. What is the Pre-Regulation equilibrium quantity and price? b. What is the Post-Regulation Equilibrium price and quantity?
Truly signalled the meltdown of global financial markets : On September 15, 2008, the Collapse of Lehman Brothers had truly signalled the meltdown of Global financial markets.
Define and assess each international entity and rules : Describe and assess each international entity and rules it must follow. Be four to five pages in length, not including the cover or reference pages.
What is the intrinsic value of your puts per share : What is the intrinsic value of your puts per share? What is the time value of your puts per share? Are your puts ATM, OTM, or ITM, and by how much?
Calculate single cash flow using npv function : Calculate single cash flow using NPV function. (Note: Use Excel NPV, enter rate and use a column with a zero amount for years 1-4).
How does the french system figure into discussion : Take a moment to explore the French system. How does the French system figure into this discussion? Does France have a presidential system like the United State
Market effect on domestic and foreign auto producers : If major domestic auto producers are given a bailout for their financial troubles what will be the market effect on domestic and foreign auto producers.
Why do ponzi schemes continue to work time after time : Why do Ponzi schemes continue to work time after time

Reviews

Write a Review

Financial Management Questions & Answers

  Dividend payout rate and expected growth rate

Maynard Steel plans to pay a dividend of $2.99 this year. The company has an expected earnings growth rate of 3.8 % per year and an equity cost of capital of 9.3%. Assuming? Maynard's dividend payout rate and expected growth rate remain? constant, an..

  What is the company debt-equity ratio

Fama's Llamas has a weighted average cost of capital of 10.2 percent. What is the company's debt-equity ratio?

  Treasury note maturing

A. Suppose that a U.S. Treasury note maturing June 15, 1995 is purchased with a settlement date of February 17, 1994. The coupon rate is 4.125% and the par value is $100,000. The next coupon date is June 15, 1994. What is the full (dirty) price of th..

  Expected return and variance

State of Economy Probability of State of Economy Stock A Stock B Stock C. What is the expected return on an equally weighted portfolio of these three stocks?  What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C..

  Cost of transporting her household goods-personal effects

At the beginning of 2014, Donna harp was employed as a cinematographer by Farah Movie, Inc., a motion picture company in Los Angeles, California. In June, she accepted a new job with Ocala Production in Orlando, Florida. The cost of transporting her ..

  In order to purchase new equipment firm must borrow money

In order to purchase new equipment, firm must borrow money. The interest expense and its tax consequences should both be included in capital budgeting analysis.

  Stream of cash flows-cash flow at the end of the first year

stream of cash flows. Cash flow at the end of the first year will be $9,000, and cash flows in future years are expected to grow indefinitely at an annual rate of 4%. If the discount rate for this project is 10%, what is the project NPV?

  What is the current yield and what is the yield to maturity

You purchased a bond for $875. It has a face value of $1,000, it pays $80 a year, and it matures after ten years. What is the current yield? What is the yield to maturity?

  What was the value of the ira at the end of years

Meagan invests $1,200 each year in an IRA for 12 years in an account that earned 5% compounded annually. At the end of 12 years, she stopped making payments to the account, but continued to invest her accumulated amount at 5% compounded annually for ..

  Describe how an arbitrage situation could be developed

A two yr. treasury bond has annual coupon pmts. Describe how an arbitrage situation could be developed.

  What is the present value index

Brown LLC is investing in a new machine that cost $200,000. What is the present value index?

  Dividends to grow at the long-run growth rate in earnings

Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million. This onetime unusual earnings growth won’t be maintained, though, and after 2014 Boehm..

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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