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1) A call with the strike price of $60 costs $6. A put with same strike price and expiration date costs $4. Create a table that illustrates profit from a straddle. For what range of stock prices would the straddle lead to loss?

2) A company has granted 2,000,000 options to its employees. Stock price and strike price are both $60. Options last for eight years and vest after two years. Company decides to value options using the expected life of six years and a volatility of 22% per annum. Dividends on stock are $1 per year, payable halfway through each year, and risk-free rate is= 5%. What will company report as the expense for options on its income statement?

Basic Finance, Finance

  • Category:- Basic Finance
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