User Account

All Pages

What was the intrinsic value of an option

Assignment Help Financial Management
Reference no: EM131517136

Seth Harris is an avid investor who likes to speculate on stock price changes. Lately, he’s become bored with the slow movement of most stock prices and thinks options might be more exciting. He has been following the stock of Chelsea Club Inc., a women’s apparel manufacturer. Chelsea’s stock price has been stable for more than a year, but Seth is convinced it will increase in the near future but probably not rapidly.

Amanda Johnson owns 1,000 shares of Chelsea Club purchased a year ago at $37. She thinks the stock’s price will continue in the upper $30s indefinitely and may even fall a little. Her broker has recommended writing options as a source of income on stagnant stocks.

Chelsea is selling for $38, and six-month call options at a $36 strike price sell for $4.

This morning Amanda wrote call options on her 1,000 shares, which Seth bought through an options exchange. At the time of that transaction:

a. What was the intrinsic value of an option? b. What was the option’s time premium?

c. Was the call in or out of the money?

d. How much has Amanda invested?

e. What is the most Seth can make or lose?

Reference no: EM131517136

Questions Cloud

What is amtrak ordering cost-annual demand for new drivers : What is Amtrak’s annual demand for new drivers? What is Amtrak’s ordering cost?
What growth management problems : what growth management problems does R&E appear to face in this period?
Municipal bonds and mortgage bonds and debentures : Explain the difference between municipal bonds and mortgage bonds and debentures.
Defining risk in the estimation of a firms cost of equity : Equity Cost and Risk: What are the classifications used in defining risk in the estimation of a firm’s cost of equity?
What was the intrinsic value of an option : What was the intrinsic value of an option? What was the option’s time premium?
Compute the total cash dividends paid to each class of stock : Compute the total cash dividends paid to each class of stock in 2014 through 2017.
What is its aftertax cost of debt : Compute the weighted average cost of capital. What is its aftertax cost of debt?
Calculate the weighted average cost of capital : Calculate the weighted average cost of capital (WACC) given a tax rate of 25%
Ordinary annuity : If Nancy can invest her money at 6 percent in an ordinary annuity, Nancy must invest how much today?

Reviews

Write a Review

Financial Management Questions & Answers

  What was the flotation cost as a percentage of funds raised

The Green Hills Co. has just gone public. What was the flotation cost as a percentage of funds raised?

  Use those values to compute the critical ratio

Land’s End is deciding how many sunglasses to order from a small manufacturer. One option under consideration would have the manufacture sell the sunglasses to Land’s End for $65 and credit Land’s End $53 for each unit left unsold and returned at the..

  Particular risky asset relative to that average risky asset

Which one of the following measures the amount of systematic risk present in a particular risky asset relative to that in an average risky asset?

  Decides to increase the federal funds rate

Suppose that the Fed is concerned about inflation and decides to increase the federal funds rate by 50 basis points. How will they accomplish this?

  Calculate the project internal rate of return

J. Cena is looking to grow upon an existing project. The expansion requires an immediate outflow of $85 million. J.Cena anticipates the project will generate one future cash flow of $155 million that will arrive at the end of year 6, and only in that..

  Develop effective talent management strategies to recruit

Develop effective talent management strategies to recruit and select employees

  What is the principal balance on the loan after six months

Assume the following information for a car note: Original loan amount = $23,500 Annual interest rate = 7.25% Term of loan = 24 months. What is the principal balance on the loan after six months?

  Describes the IRR decision criterion

Which of the statements below describes the IRR decision criterion?

  Two years after the bonds were issued

Alibaba Company Limited sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6..

  Financial managers goal of shareholder wealth maximization

Are ethics critical to the financial manager’s goal of shareholder wealth maximization? How are the two related?

  What was the investors geometric average return

An investor experienced returns of 8%, 6%, 4%, 10%, and -2% in five consecutive years. What was the investor's geometric average return over the five year period?

  Calculate the number of shares in issue if the company

Calculate the number of shares in issue if the company where to pay the dividend and Calculate the number of shares in issue if the company where to repurchase its shares.

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