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1. Touron Inc. recently closed at $11.80 per share. The following chart lists some of the option
prices for Touron Inc.: (Assume that the options are American) Assume a monthly interest rate of
1% and that the December, January, and Mareh contracts have 2,3 and 5 months to expiration,
respectively. a) Find the intrinsic value of the Dee 10 call. b) Find the time value of the Dee 10 call.
c) Find the minimum value of the Dee 10 call. d) Find the maximum price that the March 10 call
can sell for. c) Find the maximum price that the March 15 put can sell for f) Find the intrinsic value
of the of the Dee 10 put. g) Find the time value of the Dec 15 put. h) Find one option that is
overpriced, (There may be several). Why it is overpriced. Explain. i) Find one option that is
underpriced, (There may be several). Why it is underpriced. Explain. j) Find the lower bound of the
Jan 10 call. k) If the Jan 10 call was selling for $1.30, how would you take advantage of this price?

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1 Touron Inc recently closed at 1180 per share The foll.pdf

  • 1. 1. Touron Inc. recently closed at $11.80 per share. The following chart lists some of the option prices for Touron Inc.: (Assume that the options are American) Assume a monthly interest rate of 1% and that the December, January, and Mareh contracts have 2,3 and 5 months to expiration, respectively. a) Find the intrinsic value of the Dee 10 call. b) Find the time value of the Dee 10 call. c) Find the minimum value of the Dee 10 call. d) Find the maximum price that the March 10 call can sell for. c) Find the maximum price that the March 15 put can sell for f) Find the intrinsic value of the of the Dee 10 put. g) Find the time value of the Dec 15 put. h) Find one option that is overpriced, (There may be several). Why it is overpriced. Explain. i) Find one option that is underpriced, (There may be several). Why it is underpriced. Explain. j) Find the lower bound of the Jan 10 call. k) If the Jan 10 call was selling for $1.30, how would you take advantage of this price?