1. You are considering buying a call option for Bernie Bros, a company that is building a series of assisted living homes for aging hippies. Bernie Bros current stock price is $27.50, and the call option you are looking at sells for $6.40 with a $24.00 strike price and six months to expiration.
a. What is the intrinsic value of this option today?
b. What is the premium of this option today?
c. Draw a payoff graph for this option with the stock price at expiration on the x axis. Plot the payoffs for both the buyer and the seller of this call option.
d. If the perceived future volatility of the shares of Bernie Bros was to decrease, what would happen to the price of this option?
e. If you decided you wanted to buy a one-year option instead of the six month, would it cost you more or less? Why?