MBA Finance

1. Define each of the following terms: Call option Put option Strike price or exercise price Expiration date Exercise value Option price Time value Writing an option Covered option Naked option In-the-money call Out-of-the-money call LEAPS 2. The current price of a stock is $50. In 1 year, the price will be either $65 or $35. The annual risk-free rate is 10%. Find the price of a call option on the stock that has an exercise price of $55 and that expires in 1 year. (Hint: Use daily compounding.) 3. The exercise price on one of Chrisardan Company’s call options is $20, its exercise value is $27, and its time value is $8. What are the option’s market value and the price of the stock? Submit your answers in a Word document.