Project 2: Stock Options

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Project 2 Stock Options
Jennifer Jones Lindsay Yoshitomi Leslie
White Jeff Guba
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Current Situation at hand
The first part of our project entitles us to
determine the value of our stock at the start
date of our stock option, March 21, 2003. Once we
determine the value of the stock we can then
determine if the current value would produce a
positive value of money made or a value of 0.
A second key utility to helping determine if this
stock is worth investing in will be researching
the stock price of Johnson and Johnson in the
past. By gaining info on how Johnson and Johnson
has faired in the stock market this will help us
determine how good or bad the stock does. The
time period being measured will be from March 21
until the first week in July for the past 12
years.
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Terms to Understand
Strike price- pre- specified price at which the
holder of a call can buy the stock or
holder of a put can sell stock. Stock Option-
contract that gives you the option to buy shares
of a particular stock for a set price
(you are not forced to exercise
this). European Options- can only be exercised on
the expiration date. Risk Free Rate- current
T-Bill rate return, on safe investment. Length of
option- the time in which one must wait to
exercise a European Option in which an
investor can purchase shares of particular
stock. of years to download- the necessary
information needed to research the
price of a particular stock for a certain time
period. Call- option allowing holder to buy
stock. Put- option allowing holder to sell
stock.
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Background of Stock
Stock Name Johnson and Johnson
Ticker Symbol JNJ
Risk free rate 1.20 of years to
download 12 years
Strike Price 40 Length of Option 17 weeks
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Solution
We used the following information to determine
our final answer
Value of stock at Mar. 21, 2003 58.67 -Therefor
e Current value- strike price 58.67-40.00
18.67
Highest point of stock at end of waiting period
99.75 Lowest 39.75 Probability of stock to
have a positive value at end of waiting period
91.6
The percentage was found by
Therefore, at this time with the value of the
stock above our strike price of 40, our group
would decide to exercise the option to invest in
Johnson and Johnson at 40 per share.