​You Are Given the Following Information Concerning a Stock and a Call

question 6

Essay

​You are given the following information concerning a stock and a call option and a put option
Price of the stock $\$ 42$
Strike price (both options) $\$ 40$
Price of the call
$\$ 6$
Price of the put
$\$ 3$
Expiration date
three months
a. What is the call's intrinsic value?
b. What is the time premium paid for the call?
c. What is the put's intrinsic value?
d. What is the time premium paid for the put?
e. If the price of the stock declines to $25, what is the maximum amount you could lose by buying the call?
f. If the price of the stock declines to $25, what is the maximum amount you profit by buying the put?
g. If after three months the price of the stock is $48, what is the profit (loss) from buying the call?
h. If after three months the price of the stock is $48, what is the profit (loss) from selling the put?

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Definitions:

Fundamental Attribution Error

The bias of overemphasizing personal traits and underestimating situational factors when explaining other people's behaviors.

Wealthy People

Individuals who possess a substantial amount of money, assets, or resources, significantly above the societal average.

Actor-Observer Effect

The tendency to attribute one's own actions to external factors while attributing others' actions to internal factors.

Internal Attributions

The process of explaining one's own behavior or the behavior of others based on internal, personal characteristics.