投资习题4.docVIP

Chapter 14 Stock Options Concept Questions 1. Assuming American-style exercise rights, a call option confers the right, without the obligation, to buy an asset at a given price on or before a given date. An American-style put option confers the right, without the obligation, to sell an asset at a given price on or before a given date. European-style options are the same except that exercise can only occur at maturity. One reason you would buy a call option is that you expect the price of the asset to increase. Similarly, you would buy a put option if you expect the price of the asset to decrease. In both cases, other reasons exist, but these are the basic ones. A call option has unlimited potential profit, while a put option has limited potential profit; the underlying assets price cannot be less than zero. 2. a. The buyer of a call option pays money for the right to buy.... b. The buyer of a put option pays money for the right to sell.... c. The seller of a call option receives money for the obligation to sell.... d. The seller of a put option receives money for the obligation to buy.... 3. In general, the breakeven stock price for a call purchase is the exercise price plus the premium paid. For stock prices higher than this, the purchaser realizes a profit. For a put purchase, it’s the strike price less the premium. For stock prices lower than this, the purchaser realizes a profit. 4. If you buy a put option on a stock that you already own, you guarantee that you can sell the stock for the strike price on the put. Thus, you have, in effect, insured yourself against stock price declines beyond this point. This is the protective put strategy. 5. The intrinsic value of a call option is max{0, S – K}. It is the value of the option if it were exercised immediately. 6. The intrinsic value of a put option at expiration is max{0, K – S}. By definition, the intrinsic value of an option is its value if it were exercised immediately. 7. The call is selling