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Use the following information on call and put options for IBM to answer the questions.

a. What is the intrinsic value of the call option that expires in April and has a $95 strike price?

b. What is the intrinsic value of the put option that expires in January and has a $105 strike price?

c. Briefly explain why a call with a $105 strike price sells for less than a call with a $95 strike price (for all expiration dates) while a put with a $105 strike price sells for more than a put with a $95 strike price (for all expiration dates).

d. Suppose you buy the January call with a strike price of $105. If you exercise it when the price of IBM is $130, what will be your profit or loss?
e. Suppose you buy the April put at the price listed and the price of IBM stock remains at $90.78. What will be your profit or loss?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92059890

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