A Put Exists with the Option to Sell a Stock

question 21

Essay

A put exists with the option to sell a stock at $35. The price of the stock is $34, and the price of the put is $2.
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a. What is the intrinsic value of the put?
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b. What is the time premium paid for the put?
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c. What is the percentage return from purchasing the put if, at the expiration of the put, the price of the stock is $31?

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Definitions:

Uniform Commercial Code

A comprehensive set of laws governing all commercial transactions in the United States, intended to standardize and make uniform the regulations across the states.

Inventory Purchasing

The process of acquiring goods and materials that a company intends to sell in its normal business operations.

Sporting Goods Store

A retail business specializing in the sale of sports equipment and related items for various physical activities and sports.

Lump-sum

A one-time payment executed at a specific moment, rather than several payments spread out over a period.