Consider a Put OPTION with an exercise price of $40 on a stock trading at $50 per share.
For FULL credit, answer BOTH PARTS:
1 What is the Intrinsic Value of the PUT option described (this is a dollar value, not a description)?
Explain briefly why an option premium can NEVER have a negative value.
a. Tahiji is a small island in the south Pacific where the stock exchange has only two listed stocks. They publish two stock indexes so that the world will know the status of the Tahijian Stock Market ("TSM"). Consider the two stocks on the TSM:
12/31/2014 12/31/2015
Price Total Shares Price Total Shares
Coco-Nutz R US 50 1000 60 1000
Tahijian Electric 100 1000 43 3000
Note that Tahijian Electric split 3:1 in 2015
What was the rate of return on the TSM during 2015 as reported by their Price Weighted average?
Enter as percent. So, for 4% enter "4" or "4.00" carry out to basis points (i.e., 1/100 percent).
b. What is the Best Known index of that Price Weighted variety?
c. Tahiji is a small island in the south Pacific where the stock exchange has only two listed stocks. They publish two stock indexes so that the world will know the status of the Tahijian Stock Market ("TSM"). Consider the two stocks on the TSM:
12/31/2014 12/31/2015
Price Total Shares Price Total Shares
Coco-Nutz R US 50 1000 60 1000
Tahijian Electric 100 1000 43 3000
Note that Tahijian Electric split 3:1 in 2015
What was the rate of return on the TSM during 2015 as reported by their Market Value Weighted index?
Enter as percent. So, for 4% enter "4" or "4.00" carry out to basis points (i.e., 1/100 percent).
d. Name Oneindex of that Market Value Weighted variety?
e. How do you reconcile your different results in PARTS (a) and (c) {HINT:HINT} with the idea of benchmarking? Explain why this may be an issue.