Currently, one share of ABC stock is valued at 92. You are given the following prices of European options on one share of this stock:
One-year 90-strike: Call= 11.65 Put =4.40
One-year 95-strike: Call= 8.30 Put =5.75
The force of interest is 6%. (FYI, the force of interest is often called the continuouslycompounded rate of interest.) (These problems ask you to calculate the profit or loss on the expiration date of the options. Thus, you will want to adjust any option premiums paid or received at the beginning of the life of the options, to their values at the end of the life of the options; this adjustment will reflect the time value of money.)
(1) You buy one 95-strike call option. On the expiration date of the option, ABC stock has a price of 101 per share. Find your profit or loss on the expiration date of the option.
(2) You buy one 90-strike put option. On the expiration date of the option, ABC stock has a price of 83 per share. Find your profit or loss on the expiration date of the option.
(3) You buy one 95-strike call option and sell one 90-strike put option. On the expiration date of the option, ABC stock has a price of 99 per share. Find your profit or loss on the expiration date of the option.
(4) You buy one 90-strike call option and you also buy one 90-strike put option. On the expiration date of the option, ABC stock has a price of 75 per share. Find your profit or loss on the expiration date of the option.