The following prices are available for call and put options on a stock priced at $50.The risk-free rate is 6 percent and the volatility is 0.35.The March options have 90 days remaining and the June options have 180 days remaining.The Black-Scholes model was used to obtain the prices.
Use this information to answer questions 1 through 20.Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated.
Answer questions 10 and 11 about a calendar spread based on the assumption that stock prices are expected to remain fairly constant. Use the June/March 50 call spread. Assume one contract of each.
-What will be the profit if the spread is held 90 days and the stock price is $45?
Definitions:
Expense
Costs incurred by a business in the process of earning revenues.
Deferral Adjusting Entry
An accounting entry made to defer revenue or expense to a future period.
Unearned Revenue
Money received by a business for services or products yet to be delivered or completed.
Interest Revenue
Income earned from lending funds or investing in interest-bearing financial instruments.
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