1. Complete the following tables (the example from the course): We start with the assumption that the futures price is 100$ when the transaction opens, the initial margin requirement is 5$, and the maintenance margin requirement is 3$. Table 1. Holder of long position of 10 contracts Day Beginning Funds Settlement Futures price change (5) Gain/Loss (6) Ending balance (7) (1) balance (2) deposited (3) price (4) 0 100.00 99.20 96.00 101.00 103.50 103.00 104.00 Table 2. Holder of short position of 10 contracts Settlement Futures price Ending balance (7) change (5) 12345 6 Day (1) 0 1 2 3 4 5 6 Beginning balance (2) Funds deposited (3) price (4) 100.00 99.20 96.00 101.00 103.50 103.00 104.00 Gain/Loss (6)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
1. Complete the following tables (the example from the course):
We start with the assumption that the futures price is 100$ when the transaction opens, the initial margin
requirement is 5$, and the maintenance margin requirement is 3$.
Table 1. Holder of long position of 10 contracts
Day
Beginning
Funds
Settlement
Futures price
change (5)
Gain/Loss
(6)
Ending
balance (7)
(1)
balance (2)
deposited (3) price (4)
0
100.00
99.20
96.00
101.00
103.50
103.00
6
104.00
Table 2. Holder of short position of 10 contracts
Day
Funds
Settlement
Beginning
balance (2)
Futures price
change (5)
Gain/Loss
(6)
Ending
balance (7)
(1)
deposited (3) price (4)
0
100.00
1
99.20
2
96.00
3
101.00
4
103.50
5
103.00
6
104.00
2. Suppose that an European call option on 1000 shares has the strike price 22 $/share and the premium 0.8
$/share.
a) What will be the buyer's payoff if the spot price at maturity is 23.1 $/share? Draw the diagram.
b) What will be the seller's (writer) payoff if the spot price at maturity is 22.4 $/share? Draw the diagram.
c) What will be the maximum loss for the option buyer and for the option seller?
d) If the spot price at maturity is 19 $/share, the call option is ITM, ATM or OTM?
e) For which value of the spot price the call option is ATM?
3. Suppose that an European put option on 1000 shares has the strike price 9 $/share and the premium 0.5
$/share.
a) What will be the maximum loss and the maximum profit for the option buyer?
b) What will be the seller's payoff if the spot price at maturity is 9.3 $/share? Draw the diagram.
c) What will be the buyer's payoff if the spot price at maturity is 8.2 $/share? Draw the diagram.
d) If the spot price at maturity is 8.7 $/share, the put option is ITM, ATM or OTM?
e) For which value of the spot price the put option is ATM?
1
2
3
4
5
Transcribed Image Text:1. Complete the following tables (the example from the course): We start with the assumption that the futures price is 100$ when the transaction opens, the initial margin requirement is 5$, and the maintenance margin requirement is 3$. Table 1. Holder of long position of 10 contracts Day Beginning Funds Settlement Futures price change (5) Gain/Loss (6) Ending balance (7) (1) balance (2) deposited (3) price (4) 0 100.00 99.20 96.00 101.00 103.50 103.00 6 104.00 Table 2. Holder of short position of 10 contracts Day Funds Settlement Beginning balance (2) Futures price change (5) Gain/Loss (6) Ending balance (7) (1) deposited (3) price (4) 0 100.00 1 99.20 2 96.00 3 101.00 4 103.50 5 103.00 6 104.00 2. Suppose that an European call option on 1000 shares has the strike price 22 $/share and the premium 0.8 $/share. a) What will be the buyer's payoff if the spot price at maturity is 23.1 $/share? Draw the diagram. b) What will be the seller's (writer) payoff if the spot price at maturity is 22.4 $/share? Draw the diagram. c) What will be the maximum loss for the option buyer and for the option seller? d) If the spot price at maturity is 19 $/share, the call option is ITM, ATM or OTM? e) For which value of the spot price the call option is ATM? 3. Suppose that an European put option on 1000 shares has the strike price 9 $/share and the premium 0.5 $/share. a) What will be the maximum loss and the maximum profit for the option buyer? b) What will be the seller's payoff if the spot price at maturity is 9.3 $/share? Draw the diagram. c) What will be the buyer's payoff if the spot price at maturity is 8.2 $/share? Draw the diagram. d) If the spot price at maturity is 8.7 $/share, the put option is ITM, ATM or OTM? e) For which value of the spot price the put option is ATM? 1 2 3 4 5
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education