Suppose TELSA's stock price is currently $20. A six-month call option on TELSA's stock with an exercise price of $18 has a value of $6.38. What is the price of an equivalent put option? The six-month risk- free interest rate is 5 percent per six-month period.
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- A stock currently trades at $100. In one month its price will either be $125, $100, or $75. 1 sell you a call option on this stock, struck at $95, for $11. | hedge my exposure by purchasing A shares, borrowing 1004 - 11 in order to fund the purchase. The simple rate of interest is 12%. (@) What will my profit/loss be in one month? {b) Is it possible for me to completely hedge my exposure? Explain.Suppose ABC's stock price is currently $25. In the next six months it will either fall to $15 or rise to $40. What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5% (periodic rate). [Use the riskneutral valuation method]A. $20.00 B. $8.57 C. $9.52 D. $13.10Astock currently trades at $100. In one month its price will either be $125, $100, or $75. 1 sell you a call option on this stock, struck at $95, for $11. | hedge my exposure by purchasing A shares, borrowing 1004 - 11 in order to fund the purchase. The simple rate of interest is 12%. (2) What will my profit/loss be in one month? {b) Is it possible for me to completely hedge my exposure? Explain.
- You buy a put option on IBM common stock. The option has an exercise price of $136 and IBM’s stock currently trades at $140. The option premium is $5 per contract.a. What is your net profit on the option if IBM’s stock price increases to $150 at expiration of the option and you exercise the option? b. How much of the option premium is due to intrinsic value versus time value?c. What is your net profit if IBM’s stock price decreases to $130?d. Draw the payout diagram at maturity on a short put option position, option premium = $2, and the same exercise price... (Please give the full solution I will upvote)Question 2. You have been asked to value a Arithmetic Lookback option which expires in six months time. At the end of the six months the buyer is paid the arithmetic mean of the underlying stock over the contract period. Using the compressed stock tree presented in Figure 1 and assuming an annual interest rate of 4.5% determine the fair price of the Arithmetic Lookback option. Why are Lookback options considered to he expensive? 182.5 158.7 138 138 120 120 104.4 104.4 90.8 79 Figure 1: Compressed stock treeRefer to the stock options on Microsoft in the Figure 2.10. Suppose you buy a November expiration call option on 100 shares with the excise price of $140. Required: a-1. If the stock price at option expiration is $144, will you exercise your call?a-2. What is the net profit/loss on your position? (Input the amount as a positive value.)a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) b-1. Would you exercise the call if you had bought the November call with the exercise price $135?b-2. What is the net profit/loss on your position? (Input the amount as a positive value.)b-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)c-1. What if you had bought the November put with exercise price $140 instead? Would you exercise the put at a stock price of $140?c-2. What is the rate of return on your position? (Negative…
- An investor owns Citibank stock at $75. They want to sell some 3-month out- of-the-money call options against their position. STRIKES 72.50 75 77.50 CALL PRICE 5.60 4.12 2.84 Create a table showing the profit and loss for underlying trading at 70, 72.5, 75, 77.5, 80 and 82.5 for all the positions and the option strategy. Draw an expiry pay-off diagram, using the prices in the table.Assume only two states will exist one year from today when a call on Delta Transportation, Inc. stock expires. The price of Delta stock will be either $60 or $40 on that date. Today, Delta stock trades for $55. The strike price of the call is $50. The continuously compounded risk - free rate is 9%. a. What is the tracking portfolio (\Delta and b)? b. How much are you willing to pay for the call option?4. A stock is selling today for $100. The stock has an annual volatility of 45 percent and the annual risk-free interest rate is 12 percent. A 1 year European put option with an exercise price of $90 is available to an investor .a.Use Excel’s data table feature to construct a Two-Way Data Table to demonstrate the impact of the risk free rate of interest and the volatility on the price of this put option: i. Risk Free Rates of 5%, 7%, 9%, 12%, 15% and 18%. ii. Volatility of 35%, 45%, 55%, and 65%. b. How is the put option price impacted by varying the risk free rate of interest? c.How is the put option price impacted by varying the volatility?
- Suppose that you plan to invest in stock A, because you believe that stock A will appreciate in the next 6 months. The stock current price is $100, and a call option on stock A expiring in 6 months has an exercise price of $100 selling at $15 per option. And you have $7500 in hand to invest the following three strategies: A: Invest entirely in stock A. B: Invest entirely in call option on stock A. C: Buy call options the amount of calls is same as the number of shares we purchase in strategy A, and invest the remaining money in T-bills at interest rate whose annual interest rate is 10%. Suppose that the possible stock price are $90, $100, $110, and $120. (a) At expiration (after 6 months), compute the rates of return for each strategy given different possible stock prices. We don't consider the premium we’ve paid for holding call options in this case. (b) Given different stock price at expiration, which strategy would you like to choose? For example, if the stock price is $90, which…You have taken a long position in a call option on IBM common stock. The option has an exercise price of $176 and IBM’s stock currently trades at $180. The option premium is $5 per contract. What is your net profit on the option if IBM’s stock price increases to $190 at expiration of the option and you exercise the option? What is your net profit if IBM’s stock price decreases to $170?Consider the following information on AAPL. The current stock price is $326.72. The call option has a strike price of $320. The price of the call option is $68. The option has 1 year till expiration. Question: Suppose you purchase the option at the current price and hold it until expiration. If the stock price at expiration is $350, the return on your investment is: -55.88% 44.11% -100% None of the above