Question 1. The exercise price on a call option is $30 and the price of the underlying stock is $35. The option will expire in 35
days. The option is currently selling for $5.75.
a. Calculate the option’s exercise value?
b.Calculate the value of the premium over and above the exercise value? Why is an investor willing to pay more than the exercise
c. Is this an out-of-the money, at-the-money, or in-the-money option? Why?
d. What will happen to the value of the option if the underlying stock price changes to $30? Why?
e. Is this an example of a covered call option or a naked call option? Why?
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