T-bills currently yield 5.0 percent. Stock in Danotos Manufacturing is currently selling for $87 per share. There is no possibility that the stock will be worth less than $80 per share in one year.

Required:

a. What is the value of a call option with a $76 exercise price?

b. What is the intrinsic value?

c. What is the value of a call option with a $68 exercise price?

d. What is the intrinsic value?

e. What is the value of a put option with a $76 exercise price?

f. What is the intrinsic value?

a) Call option = Stock price - present value of the exercise price

= $87 - [$76 : 1.05]

= $14.62

b) The intrinsic value is the amount by which the stock price exceeds the exercise price of the call, so the intrinsic value is

= $87 - $76

=$11

c) Call option = Stock price - present value of the exercise price

= $87 - [$68 : 1.05]

= $22.24

d) The intrinsic value is the amount by which the stock price exceeds the exercise price of the call, so the intrinsic value is

= $87 - $68

=$ 19.

e) The value of the put option is $0 because there's no chance the put exhausts the money.

f) The intrinsic value is also $0