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84. What is the minimum value of the call option on a convertible bond (with face value of
$1,000) with a conversion ratio of 30 if the bond offers a 9% coupon, has 10 years until maturity,
and market interest rates are 9% for comparable bonds? The stock is currently priced at $35.
85. Which one of the following is correct concerning callable bonds?
86. The value of a call option at expiration will be equal to the maximum of zero or the:
87. IBM shares are currently selling at $75. The premium on a call option on IBM shares with
an exercise price of $60 will be:
88. You purchased a call option with an exercise price of $50 and a premium of $6. If you
exercise the option when the stock price is $60, your net proceeds will be:
89. Three months ago you bought a put option with an exercise price of $100 and a premium
of $4. If the stock price at expiration of this option is $92, what is your return on investment?
90. A firm is planning to issue a callable bond with a coupon rate of 8% and 10 years to
maturity. A straight bond with a similar coupon is priced at $1,000. If the value of the issuer's call
option is estimated to be $60, what is the value of the callable bond?
91. A stock is selling at $85 at the expiration of an option contract. Which one of the
following options on the stock will most likely be exercised?
92. Which one of the following changes will decrease the value of a call option?
93. An investor who is selling a put option is expecting:
94. On March 30 you are holding a call option with an exercise price of $60 that will expire on
March 31. The closing price of the stock on March 30 is $59. What is the value of your call
option?
95. The value of a put at expiration is defined as the:
96. You purchased a stock for $36 a share, a call option with an exercise price of $35 and a
premium of $3, and a put option with an exercise price of $35 and a premium of $2. What will be
your net profit if you close out all three positions when the stock is selling for $37 a share?
97. You purchased a stock for $43 a share, a call option with an exercise price of $40 and a
premium of $5, and a put option with an exercise price of $45 and a premium of $4. What will be
your net profit if you close out all three positions when the stock is selling for $48 a share?
98. An investor purchased both a put and a call option on a stock with exercise prices of $40
a share. The put cost $1 and the call cost $3. When the options expire the stock price is $43.
What is the investor's net profit?
99. If you sell a put option, your maximum profit potential is equal to:
100. Assume that call options on Microsoft stock with the same exercise date in October are
available with exercise prices $45, $55, and $65. Also assume that the price of the middle call is
the average of the other two calls. Show that if you sell two of the middle calls and use the
proceeds to buy one each of the other calls, your proceeds in October may be positive but cannot
be negative despite the fact that your net outlay today is zero. What can you deduce from this
example about option pricing?
101. How does the price of a put option respond to the following changes, other things being
equal? Does the put price go up or down?
a. Stock price increases.
b. Exercise price increases.
c. Risk-free interest rate increases.
d. Expiration date of the option is extended.
e. Volatility of the stock price falls.
f. Time passes, so the option's expiration date comes closer.
