Given the Following Information

question 72

Essay

Given the following information,
      Price of a stock                  $50
      Strike price of a six-month call  $45
      Market price of the call           $9
Finish the following sentences:

a. The intrinsic value of the call is _________.
b. The time premium paid for the call is ________.

c. If an investor established a covered call position, the amount invested is _________.

d. The most the buyer of the call can lose is ________.

e. The maximum amount the seller of the call naked can lose is ________.

f. Which call is "in" or "out" of the money?

After six months (i.e., at the expiration date of the call), the price of the stock is $52.

g. The profit (loss)from buying the call is ________.

h. The price (loss)from selling the call naked is _______.

i. The profit (loss)from selling the call covered is     __________.

j. The profit (loss)from selling the stock short six months earlier is _________.

k. At expiration, the time premium paid for a put or a call is _________.

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Definitions:

Optimal Bidding Strategy

A method or plan designed to win at an auction or in a competitive context, maximizing the chance of success while minimizing costs.

True Value

The actual, inherent worth of an asset, without distortion from market factors or perceptions.

Bid-rigging

A fraudulent scheme where businesses collude to control the bidding process, often at the expense of fairness.

Common Value Auctions

Auctions in which the item for sale has a value that is equally unknown to all bidders, but ultimately, the value is the same for everyone.