Given the Following Information

question 26

Essay

Given the following information,
     Price of a stock                             $39
     Strike price of a six-month call     $35
     Market price of the call                 $8
     Strike price of a six-month put      $40
     Market price of the put                  $3
Finish the following sentences:
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a. The intrinsic value of the call is _________.
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b. The intrinsic value of the put is _________.
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c. The time premium paid for the call is _________.
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d. The time premium paid for the put is _________.
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At the expiration of the options (i.e., after six months have lapsed), the price of the stock is $45.
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e. The profit (loss)from buying the call is _______.
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f. The profit (loss)from writing the call covered (i.e., buying the stock and selling the call)is ________.
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g. The profit (loss)from buying the put is _______.
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h. The profit (loss)from selling the stock short is ______.
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i. The maximum possible loss from buying the put is ______.
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j. At expiration, the maximum price commanded by a put or a call is _______.

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Definitions:

Concrete Operations

A stage in Piaget's theory of cognitive development, typically occurring between ages 7 and 11, when children gain the ability to think logically about concrete events.

Mastery Orientation

A way that children approach school tasks in which they are motivated to learn, to try hard, and to improve their performance.

Performance Orientation

A way of approaching school tasks in which students are motivated by their level of performance, ability, and incentives for trying.

Math Phobia

An extreme or irrational fear of mathematics, leading to avoidance and anxiety around the subject.