A put and call on the same underlying share each have strike price 25 and expiry date 2 years. Which portfolio will give a payoff-IS(2)-25), where S(2) is the price of the stock in 2 years. Select one: O a. going long one put and long one call O b. going short one put and long one call Oc. going long one put and short one call Od. going short one put and short one call
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- Problem: 1. Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence. Stock A Stock B 20X1 10 20 20X2 -15 -20 20X3 20 -10 20X4 25 30 20X5 -30 -20 20X6 20 60 a. Which of the two stocks is riskier? Why? b. Which of the stocks is expected to yield a higher return? Why? c. Where will you invest? Problem Solving: 1. Suppose you want to buy 10,000 shares of MegaWorld Corporation at a price of 4.00. You put up P10,000 and borrow the rest. What does your account balance sheet would look like? What is your margin? 2. Supposed that in the previous problem you shorted 10,000 shares instead of buying. The initial margin is 60 percent. What does the account balance sheet look like? 3. You deposited P100,000 cash in brokerage account and short sell P200,000 of stocks on margin.…At time t=0 Mr. Anderson sets up a riskless portfolio by taking a position in an option and in the underlying asset. Explain what Mr. Anderson needs to do at time t=1 to keep his portfolio risk neutral and why. A stock price is currently $100 and at the end of four months it will be ST . A derivative written on this stock pays off expST1/3 in four months. Given that u = 1.15, d = 0.87, and that the risk-free interest rate is 10% p.a. (continuously compounded), answer the following questions using a one-period binomial model (show all the details of your calculations and display the results with four decimal places): Calculate the value of ∆ Calculate the current value of the derivative.Consider shorting a call option c on a stock S where S = 24 is the value of the stock, K = 30 is the strike price, T = ½ is the expiration date, r = 0.04 is the continuously compounded interest rate per year, and = 0.3 is the volatility of the price of the stock. Determine the delta ratio Δ .
- Consider the three stocks in the following table. Pe represents price at time t, and Qe represents shares outstanding at time t Stock C splits two for one in the last period. Stock A B С PO 80 85 35 20 275 650 950 a. Rate of return b. New divisor c. Rate of return P1 85 80 50 01 275 650 950 % P₂ Required: a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t=0 to t= 1). Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. Calculate the new divisor for the price-weighted index in year 2. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. Calculate the rate of return for the second period (t=1 to t=2). Note: Round your answer to 2 decimal places. % 85 80 25 02 275 650 1,900What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns. Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share). Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero). Buy a one-year, 5 percent note for $1,000 (assume that the note has a $1,000 par value and that it will be held to maturity).Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
- Problem 3: Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence. Stock A Stock B 20X1 10 20 20X2 -15 -20 20X3 20 -10 20X4 25 30 20X5 -30 -20 20X6 20 60 a. Which of the two stocks is riskier? Why? b. Which of the stocks is expected to yield a higher return? Why? c. Where will you invest?Consider the three stocks in the following table. Pt represents price at time t, and ot represents shares outstanding at time t. Stock C splits two for one in the last period. Stock Po P1 21 75 65 75 75 75 55 150 50 150 50 150 110 150 115 150 60 300 A B с с 20 75 P2 a. Rate of return b. Rate of return Required: Calculate the first-period rates of return on the following indexes of the three stocks (t=0 to t= 1): Note: Do not round intermediate calculations. Round your answers to 2 decimal places. a. A market-value-weighted index. b. An equally weighted index. 22 % %Consider the three stocks in the following table. Pt represents price at time t, and ot represents shares outstanding at time t. Stock C splits two for one in the last period. Stock Po A 50 B 45 с 90 120 20 P1 a. Rate of return b. Rate of return 21 60 60 60 120 35 120 95 120 02 60 60 35 120 50 240 P2 Required: Calculate the first-period rates of return on the following indexes of the three stocks (t = 0 to t = 1): Note: Do not round intermediate calculations. Round your answers to 2 decimal places. a. A market-value-weighted index. b. An equally weighted index. % %
- Assume that you hold a call option on stock A. The call has a strike price of 50 and expires in 6 months. Stock A pays no dividends. 1. What is the payoff from the call if stock A is trading at 57 in 6 months? 2. What is the payoff from the call if stock A is trading at 45 in 6 months? 3. Draw a payoff diagram that shows the payoff of the call as a function of the underlying stock price.Consider a stock with a current price of P = $27.Suppose that over the next 6 months the stockprice will either go up by a factor of 1.41 or downby a factor of 0.71. Consider a call option on thestock with a strike price of $25 that expires in6 months. The risk-free rate is 6%.(1) Using the binomial model, what are the endingvalues of the stock price? What are the payoffsof the call option?Consider the three stocks in the following table. Pt represents price at time t, Qt represents shares outstanding at time t. Stock C splits two for one in the second period from t=1 to t=2. Calculate the rate of return on a price-weighted index consisting of the three stocks for the first period from t=0 to t=1. Answer in percentage. Answer options: 0.00% 2.49% 6.06% 8.95% 1.30%