The current futures price is 100 + 4 In the first period,the futures price can either go up 40% or down 30%.The riskless rate is (10 + 1) %. In the second period,the futures price can either go up 30% or down 20%.The riskless rate is (5 + 4)%. Find the price of a futurescall maturing in two periods with a strike price 110.

Let's examine each stage in greater detail: 1. At the conclusion of the first period, compute the…

Answered: The current futures price is 100 + 4 In…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Futures price of a commodity is currently trading at 100. By delivery date, futures price can either rise to 140 or drop to 70. The put option has K =90. To create a hedge portfolio with one put and some futures, we need to ______ futures contract for one put option we long. A. short .25 B. short .35 C. short .28 D. long .35 E. long .28
Suppose the S&P 500 index futures price is currently 950 and the initial margin is 10%. You wish to enter into 10 S&P 500 futures contracts. a. What is the notional value of your position? What is the margin? b. Suppose you earn a continuously compounded rate of 6% on your margin balance, your position is marked to market weekly, and the maintenance margin is 80% of the initial margin. What is the greatest S&P 500 index futures price 1 week from today at which you will receive a margin call?
Suppose that the current spot price of corn is $720 per bushel. The one year risk-free rate is 6% per annum. The futures price for delivery of one bushel of corn in one year’s time is $792 per bushel. Assume that net costs (storage costs minus convenience yield) are $15 per bushel (over the next one year). Is the futures contract correctly priced? If not, what is the theoretically correct price for the futures contract and how could you take advantage of any mispricing? Please show full steps and explain.
A futures contract will mature in one time step. The current return over one time-step is R = 1.01 and the underlying asset of the future contract is currently worth $27 and has up factor u = 1.1 and down factor d = 0.9. The margin account for the short side of this futures contract currently holds $16. How much will the margin account hold when the futures contract matures if the underlying asset increases in value?
The futures price of a commodity is $45. The volatility of the futures price is 14% and the continuously compounded risk free rate is 3% for all maturities. An American put option on the futures contract has strike price of $45 and a time to expiration of 6 months. Use a two-step tree. Which of the following is closest to the value of the American put ? a. $1.5625 b. $1.5508 c. $0.0
Suppose the 180-day futures price on gold is $110.00 per ounce and the volatility is 20.0%. Assume interest rates are 3.5%. What is the price of a $120 strike call futures option that expires in 180 days? Answer to 2 decimal places. Answer: 2.58 to 2.60
Given the following quotes: FBM KLCI spot = 747 points, risk-free rate = 4.5% annualised, FBM KLCI dividend yield = 1.75% annualised. i) If the 90-day KLCI futures is quoted at 762 points, show that arbitrage is possible ii) Calculate the arbitrage profit if FBM KLCI is 10% higher by futures maturity.
Demonstrate how a Margin Account operates for both the Long and the Short futures position using the following information: The initial margin is R30. The initial Futures price is R100. On Day 1 the price drops to R90. On Day 2 the price rises to R95.
The futures price of a commodity is $88. Use a three-step tree to value (a) a nine-month American call option with strike price $91 and (b) a nine-month American put option with strike price $91. The volatility is 28% and the risk-free rate (all maturities) is 3% with continuous compounding. 8.044 and 10.988 7.218 and 10.169 7.734 and 10.679 8.560 and 11.506
A Futures price is currently €80. Over each of the next two 3 month periods it will rise or fall by 10%. The risk free rate is 8% p.a. (i)Using replicating portfolio techniques, find the value of a 6 month European call option on the futures with strike €80. (ii)Verify your answer using risk-neutral valuation. (iii) Would your answer change if the call was American?
A 3-month European call on a futures has a strike price of $100. The futures price is $100 and the volatility is 20%. The risk-free rate is 2% per annum with continuous compounding. What is the value of the call option? (Use Black-Scholes-Merton valuation for futures options)
The S&P500 index is currently valued at 2862. What should be the price (FO) on the futures contract expiring 79 DAYS from now if the S&P500 has a dividend yield of 1.70%, the rf is 2.75%, and the S&P500 has an expected return of 5.00%? Assume the risk-free rate and yields are annualized, and there are 365 DAYS per year. O 2,852.85 O2,806.52 O2,839.22 O2,868.48 O 2,829.76.

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