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lilricemunch lilricemunch
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2 months ago
Which one of the following options is more expensive? Show all calculations.
(a)A six-month put that carries a $40 strike price on a stock that is currently trading at $35.84, given that the put trades at a 15 percent time value (i.e. the option is trading at a price 15% higher than its intrinsic value); or 
(b)A six-month call that carries a $50 strike price on a stock that currently trades at $54.75, while the call trades with a 12 percent time value (i.e. the option is trading at a price 12% higher than its intrinsic value).
Textbook 

Fundamentals of Investing


Edition: 14th
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WoodyNRexWoodyNRex
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2 months ago
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More questions for this book are available here
(a)Value of put = ($40.00 - $35.84) = $4.16
 Price of put = [{(0.15)($4.16)} + $4.16] [100] = $478.40
(b)Value of call = ($54.75 - $50.00) = $4.75
 Price of call = [{(0.12)($4.75)} + $4.75] [100] = $532.00
Therefore, the call is more expensive.

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