Problem 7-13 A put option in finance allows you to sell a share of stock at a gi
ID: 1720654 • Letter: P
Question
Problem 7-13
A put option in finance allows you to sell a share of stock at a given price in the future. There are different types of put options. Let us consider the European put option which allows you to sell a share of stock at a given price called the exercise price, at a particular point in time after the purchase of the European put option. For example, suppose you purchase a six-month European put option for a share of stock with an exercise price of $26. If six months later, the stock price per share is $26 or more, the option has no value. If in six months the stock price is lower than $26 per share, then you can purchase the stock and immediately sell it at the higher exercise price of $26. If for example, the price per share in six months is $22.50, you can purchase a share of the stock for $22.50 and then use the put option to immediately sell the share for $26. Your profit would be the difference, $26- $22.50 = $3.50 per share less the cost of the option. If you paid $1.00 per put option, then you profit would be $3.50-$1.00 = $2.50 per share.
Build a model in Excel to calculate the profit the European put option described above. Construct a data table in Excel that shows the profit per share for a share price in six months between $10 and $30 per share in increments of $1.00. Complete the given table below.
If required, round your answers to two decimal places. For subtractive or negative numbers use a minus sign.
Share Price Profit Per Share $10.00 $ $11.00 $ $12.00 $ $13.00 $ $14.00 $ $15.00 $ $16.00 $ $17.00 $ $18.00 $ $19.00 $ $20.00 $ $21.00 $ $ 22.00 $ $23.00 $ $24.00 $ $25.00 $ $26.00 $ $27.00 $ $28.00 $ $29.00 $ $30.00 $Explanation / Answer
Share Price Profit Per Share $10.00 $15.00 $11.00 $14.00 $12.00 $13.00 $13.00 $12.00 $14.00 $11.00 $15.00 $10.00 $16.00 $9.00 $17.00 $8.00 $18.00 $7.00 $19.00 $6.00 $20.00 $5.00 $21.00 $4.00 $22.00 $3.00 $23.00 $2.00 $24.00 $1.00 $25.00 $0.00 $26.00 -$1.00 $27.00 -$2.00 $28.00 -$3.00 $29.00 -$4.00 $30.00 -$5.00