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lianna [129]
1 year ago
11

An American-style call option with six months to maturity has a strike price of $35. The underlying stock now sells for $43. The

call premium is $12.
a) What is the intrinsic value of the call?


b) What is the time value of the call?


c) If the company unexpectedly announces it will pay its first-ever dividend 3 months from today, you would expect that the value of the call would increase, decrease, or remain unchanged?
Business
1 answer:
Travka [436]1 year ago
8 0

Answer:

a) $8

b) $4

c) Decrease

Explanation:

Background.

A call option as you probably know, is an agreement to buy an asset on or before a particular day at a price already determined in the agreement.

a) the Intrinsic value of the option is the market price minus the strike price.

Intrinsic Value = Market Price - Strike price

= $43 - $35

= $8 per share.

It is worthy of note that for an option, of the intrinsic value dips into negative figures it is just said to be 0.

b) To calculate the time value, we subtract the intrinsic value from the call premium

= Call Premium - Intrinsic value

= $12 - $8

= $4

c) The call option has 6 months to maturity and the dividends are to come in 3 months. Share prices usually drop after a dividend has been paid so because the call option matures in 6 months, the price of the call option will DECREASE owing to the Expected drop in stock price.

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yKpoI14uk [10]

Answer:

Explanation:

The coupon rate is defined as the interest rate paid on a bond by its issuer for the term of the security.

Hence,

Par Value = $800

Face Value = $1,000

N = 5 x 2 = 10

Since the interest is semi annual

i = 8% / 2 = 4%

CF = $15.34

Coupon = $30.68 per year or 3.068%

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2 years ago
What happens to the price and quantity of dog treats if the demand for dog treats increases and the supply of dog treats increas
kumpel [21]

Answer:

Demand Increase = Supply Increase : No change in price, quantity increases

Demand Increase > Supply Increase: Price increase, quantity increase

Demand Increase < Supply Increase : Price decrease, quantity increase

Explanation:

Markets are at equilibrium where market demand = market supply. And, upward sloping supply curve intersects with downward sloping demand curve.

If both demand & supply of dog treats increase, the effect on change in price & quantity will depend on their relative magnitude

  • If increase in demand = Increase in Supply : Both the curves shift equivalently rightwards. At new equilibrium -  there is no change in price, as demand increase is fulfilled by supply increase. The equilibrium quantity increases
  • If increase in demand > Increase in Supply : Demand curve shifts more rightwards than supply curve. This creates excess demand & competition among buyers increase the new equilibrium price. The equilibrium quantity also increases.
  • If increase in demand < Increase in Supply : Supply curve shifts more rightwards than demand curve. This creates excess supply & competition among sellers reduce the new equilibrium price. The new equilibrium quantity increases.
7 0
2 years ago
Suppose that coffee growers sell 200 million pounds of coffee beans at $2 per pound in 2015 and 240 million pounds for $3 per po
VARVARA [1.3K]

Answer: C) the demand for coffee beans has increased

Explanation:

The law of supply states that: "all things being equal" the higher the price the higher the quantity supplied and the lower the price, the lower the quantity supplied.

Coffee growers sold just 200 million pounds of coffee when the price was $2 per pound but they increased their supply of coffee to 240 million pounds when the price per pound is $3.

This is an evidence to show that suppliers supply more products when price increase in order for them to make more profits.

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2 years ago
Farris Corporation, which has only one product, has provided the following data concerning its most recent month of operations:
yarga [219]

Answer:

$10,700

Explanation:

The unit product cost = $15 + $57 + $3 = $75

Sale revenue = $100 × 8,400 = $840,000

Less :Variable cost

Variable cost of goods sold = 8,400 × $75 = $630,000

Variable selling and administrative = 8,400 × $7 = $58,800

Contribution margin = $151,200

Fixed manufacturing overhead = $132,000

Fixed selling and administrative expenses = $8,500

Net operating income = $10,700

4 0
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10. Veda Inc., a manufacturer of cosmetics, offers two product lines, each catering to a distinct segment. Its most popular bran
Mama L [17]

Answer:

The type of segmentation  Veda Inc. is using is called Psychographic segmentation.

Explanation:

Market segmentation is the process of dividing a target market into smaller, more defined categories.  It makes it easier to focus marketing efforts and resources on reaching the most valuable audiences and achieving business goals.

Psychographic segmentation categorizes audiences and customers by factors that relate to their personalities and characteristics.  Alo, targets women who want makeup that will last at least ten hours after application. This covers a niche market of women who are looking for makeup with anti-ageing properties.

4 0
2 years ago
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