Stocks

You bought a call option with a strike price of $25 and a put option with a strike price of $30 on Google stocks that are currently selling at $35 a share. The call option is trading at $4.50 and put option price is $2.50. (5 marks each, 15 marks)

A. Are your call and put options in the money, at the money, or out of money?

B. Calculate the Exercise price of each of the call and put.

C. What is the time value of each of your call and put options?

You are offered an investment of $1400 in year 1, $3971 in year 2, $3838 in year 3. The investment will cost you $6196 today. If the appropriate cost of capital is 6.2%, what is the profitability index of this investment?

You are considering to purchase a stock that sold for $3257 currently

It just paid an annual dividend of $155 and has an expected growth rate of 3%.

What is the discount rate of this stock?

Solution:

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