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Project 2: Stock Options

Project 2: Stock Options. Jennifer Jones Lindsay Yoshitomi Leslie White Jeff Guba. Current Situation at hand:.

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Project 2: Stock Options

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  1. Project 2: Stock Options Jennifer Jones Lindsay Yoshitomi Leslie White Jeff Guba

  2. 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.

  3. Terms to Understand: Strikeprice- 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). EuropeanOptions- 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.

  4. 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

  5. Solution: We used the following information to determine our final answer: Value of stock at Mar. 21, 2003: $58.67… -Therefore: 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.

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