Question 1: The exercise price on one Flanagan Company's options is $15, its exercise value is $22, and its premium is $5. What are the option's market value and the price of the stock?
Question 2: The current price of a stock is $20. In 1 year the price will be either $26 or $16. The annual risk-free rate is 5 percent. Find the price of a call option on the stock that has an exercise price of $21 and that expires in 1 year. (Hint: Use daily compounding.)