Assume that the effective 6-month interest rate is 2\%, the S&R 6-month forward price is $1020, and use the premiums in the table below for the S&R options with 6 months to expiration. Strike Call Put 1000 93.809 74.201 1020 84.470 84.470 Consider the ratio spread position on the S&R index consisting in buying four 1000-strike call options and selling three 1020-strike call options. a) Find the payoff as a function of S, the spot price of the S&R index in 6 months. b) Draw payoff and profit diagrams for this ratio spread position. c) For which values of the spot price S at expiration will this position outperform a long 1000-strike straddle?

Assume that the effective 6-month interest rate is 2\%, the S&R 6-month forward price is $1020, and use the premiums in the table below for the S&R options with 6 months to expiration. Strike Call Put 1000 93.809 74.201 1020 84.470 84.470 Consider the ratio spread position on the S&R index consisting in buying four 1000-strike call options and selling three 1020-strike call options. a) Find the payoff as a function of S, the spot price of the S&R index in 6 months. b) Draw payoff and profit diagrams for this ratio spread position. c) For which values of the spot price S at expiration will this position outperform a long 1000-strike straddle?

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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Which one of the following offers provides the highest return? Investment Option APR (Annual Percentage Rate) D A B C D 17.50% 18.00% 18.50% 17.00% A C You are indifferent among the options. C and D B Frequency of interest payment (in a year) 12 2 1 48
An American call option expiring in 3 - years has an exercise price of E1,500.00 on the Eswatini stockmarket and currently trades at E1,940.00. It is anticipated that the stock will rise by a factor of 1.10 andfell by a factor of 0.80. If the interest rate is 6%; find the upward prices of the option until its expiry andthe pay - offs a binomial tree.
Suppose you buy GM put for P3, which matures in two months with a strike price of P60. GM is currently trading at P62.75. If the stock price of GM falls to P57 on the expiration date of the option, the rate of return of your put is at what amount?
Suppose you buy one SPX call option contract with a strike of 2200. At maturity, the S&P 500 index is at 2218. What is your net gain or loss if the premium you paid was $14? (Input the amount as a positive value.)
Calculate the value of a call option for the following stock. Use the Black-Scholes formula. Time to expiration Standard deviation Exercise price Stock price Annual interest rate Dividend 6 months 50% per year $50 $50 3% 0 (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of a call option
A put option that expires in six months with an exercise price of $65 sells for $4.45. The stock is currently priced at $61, and the risk-free rate is 3.9 percent per year, compounded continuously. What is the price of a call option with the same exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) X Answer is complete but not entirely correct. Call price $ 1.68 X
Assume a stock price of $30.25, risk-free rate of 1 percent, standard deviation of 40 percent, N(d1) value of 0.7976, and an N(d2) value of 0.7089. What is the value of a six-month put with a strike price of $25 given the Black-Scholes option pricing model (rounded to the nearest cent)? $6.49 $0.83 $2.43 $1.12 None of the above are correct.
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. $13.10
Assume a stock price of $31.18, risk-free rate of 3.6 percent, standard deviation of 44 percent, N(₁) value of .62789, and an N(d₂) value of .54232. What is the value of a three-month call option with a strike price of $30 given the Black-Scholes option pricing model? Question 9 options: $3.38 $3.99 $3.68 $1.76 $3.45
Put–call parity (S21-1) It is possible to buy three-month call options and three-month puts on stock Q. Both options have an exercise price of $60 and both are worth $10. If the interest rate is 5% a year, what is the stock price?
Generic Stock Inc. (GS) is trading at $100. A call option with a strike price of $102, which expires in 6 months, costs $9.52 (assuming a risk - free rate of 5% and a volatility of 0.33). What is the Delta of this option
2. What are the prices of a call option and a put option with the following characteristics? Stock price = $74Exercise price = $72Risk-free rate = 2.7% per year, compounded continuouslyMaturity = 4 monthsStandard deviation = 52% per year 3. Draw the payoff picture at expiration for a long position in a call option that has a premium of $1.25 and a strike price of $30. 4. Draw the payoff picture for a short position in the call option given in Problem 2.5. Draw the payoff picture at expiration for a long position in a put option that has a premium of $3.50 and a strike price of $80. 6. Draw the payoff picture for a short position in the put option given in Problem 4.please let me have it by mornin. Thank you.

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