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3 years ago

The the existing spot price relative to the strike price, the valuable the call options will be.

Business

2 answers:

OLga [1]3 years ago

8 0

Answer:

The Higher the existing spot price relative to the strike price the more valuable the call options will be.

Explanation:

Spot price simply refers to how much a particular stock is trading in the market (that is, Market Price of the Stock).

Strike Price, also known as exercise price, is the price at which a person (corporate or individual) can purchase security.

Call options refers to the option to purchase an asset at an agreed price prior to/or at a particular day.

If for instance an employee is presented with Stock Options at a particular price, it will be more attractive for him or her if the price at which it is being offered is lower than it's actual market value. That way, he or she has already made a profit.

For example, if the spot price for the stock of Google is $2000/Unit and it is offered to an employee at $1450, if he elects to buy it at that time, he stands a chance to make $550 on each unit that if he sells whilst the spot price is still reasonable.

Cheers!

Brrunno [24]3 years ago

5 0

Answer:

The higher the existing spot price relative to the strike price, the less valuable the call options will be.

Explanation:

Call options refer to financial contracts in which the buyer of the option has the right, but not obligation, to buy asset or instrument at an already agreed price on or before a particular date. The particular date is also known as the expiration date.

The strike price is refers to the price at which a put or call option can be exercised on or before a particular date.

The spot price refers the current market price at which an instrument or asset is bought or sold now for immediate payment and delivery.

The relationship between the strike price and the spot price is that a call option is most valuable when the strike price is higher than the spot price. At this point, the call option is said to be in the money (ITM). On the other hand, a call option is least valuable when the strike price is lower than the spot price. At this point, the call option is said to be out of the money (OTM).

Based on the explantion above, therefore, the higher the existing spot price relative to the strike price, the less valuable the call options will be.

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3 years ago

According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the fol

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Answer:

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3 years ago

Buchholz Corporation follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restri

omeli [17]

Answer:

6.56%

Explanation:

1. Restricted policy where current assets are 15% of sales.

Sales = $400,000

Current assets = 0.15 * 400000 = $60,000

Total assets = Fix assets + Current assets = 100,000 + 60,000 = $160,000

Debt accounts for 50% of capital structure. Therefore 50% assets will be financed through debt.

Debt = 0.5 *160,000 = $80,000

Equity = Assets - Debt =$80,000

Interest on Debt = 10% * $80,000 = $8,000

EBIT = $35,000

Profit before tax = 35000 - 8000 = 27000

Tax = 25% of 27,000 = $6,750

PAT = $27,000-$6,750

= $20,250

ROE = 20,250/ 80000 = 25.31%

2. Calculations for relaxed policy where current assets are 25% of sales.

Sales = $400,000

Current assets = 0.25 * 400000 = $100,000

Total assets = Fix assets + Current assets = 100,000 + 100,000 = $200,000

Debt accounts for 50% of capital structure. Therefore 50% assets will be financed through debt.

Debt = 0.5 *200,000 = $100,000

Equity = Assets - Debt =$100,000

Interest on Debt = 10% * $100,000 = $10,000

EBIT = $35,000

Profit before tax = 35000 - 10000 = 25000

Tax = 25% of 25,000 = $6,250

PAT = 25000 - 6,250 = $18,750

ROE = 18750/ 100000 = 18.75%

The difference between the 2 ROEs = 25.31% - 18.75% = 6.56%

Therefore the difference in the projected ROEs between the restricted and relaxed policies is 6.56%

3 0

3 years ago

The ____ the existing spot price relative to the strike price, the ____ valuable the call options will be.

The the existing spot price relative to the strike price, the valuable the call options will be.