Show graphically and in a table the profit and futures price relationships at expiration for the followingpositions on a November corn futures options with an exercise price of $4.00/bushel, contract size of5,000 bushels, and call and put prices of $0.50/bushel. Include in your graphical analysis and tablefutures prices of $3.00, $3.25, $3.50, $3.75, $4.00, $4.25, $4.50, $4.75, $5.00, $5.25, and $5.50: a.Call purchase b. Put purchase c. Straddle write (Evaluate from prices from $2.50 to $5.50 by steps of$0.25)

Profit and Futures Price Relationships at ExpirationThis analysis will show the profit and loss at…

Answered: Show graphically and in a table the…

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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Use the data in the figure 20.1 and calculate thepayoff and the profits for investments in each ofthe following January expiration options, assumingthat the stock price on the expiration date is $125.a. Call option, X=$120b. Put option, X=$120c. Call option, X=$125d. Put option, X=$125e. Call option, X=$130f. Put option, X=$130
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 following are call option premiums and futures settlement prices for ICE cotton. These prices were quoted on December 16th, 200X. These prices are used in problems 25 through 29 (recopied here for your convenience). Strike Price (cents/lb)__ 48.00 49.00 50.00 51.00 52.00 53.00 Futures close 1.98. 0 0 1.98 O 0.60 1.38 ***** O 1.38.... 0.60 Mar-OX QUESTION - For the March-OX option with a strike price of 49.00, the intrinsic value is the time value is none of the above 2.56 1.98 1.48 1.09 .78 55 49.60 May-OX 6.14 5.33 4.59 3.92 3.31 2.74 53.69 and
Consider Commodity Z, which has both exchange-traded futures and option contracts associated with it. As you look in today's paper, you find the following put and call prices for options that expire exactly six months from now: Exercise Price Put Price Call Price $ 40.00 $ 0.59 $ 8.73 $ 45.00 $ 1.93 $ - $ 50.00 $ - $ 2.47 a. Assuming that the futures price of a six-month contract on Commodity Z is Fo, 0.5 = $48, what must be the price of a put with an exercise price of $50 in order to avoid arbitrage across markets? Similarly, calculate the "no arbitrage" price of a call with an exercise price of $45. In both calculations, assume that the yield curve is flat and the annual risk-free rate is 6 percent. b. What is the "no arbitrage" price differential that should exist between the put and call options having an exercise price of $40? Is this…
You bought a futures contract for $2.60 per bushel and the contract ended at $2.70 after several days of trading with the following close prices each day: $2.52, $2.57, $2.62, $2.68, and $2.70. What would the mark to market sequence be? A. -.08, .05, .05, .06, .02 B. .08, -.05, -.05, -.06, -.02 C. .08, .03, -.02, -.06, -.10 D. -.08, -.03, .02, .06, .10 E. .10, .06, .02, -.03, -.08
1) Draw the binomial tree listing only the option prices at each node. Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $40, S = $37.90, r = 5.0%, σ = 0.35 2) Draw the binomial tree listing only the stock prices at each node. Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $70, S = $68.50, r = 6.0%, σ = 0.32 3) Draw the binomial tree listing only the option prices at each node. Assume the following data on a 6-month put option, using 3-month intervals as the time period. K = $40.00, S = $37.90, r = 5.0%, σ = 0.35 4) Using a binomial tree explanation, explain the situation in which an American option would alter the pricing of an option.
a. A futures contract on a non-dividend-paying stock index with current value $130 has a maturity of one year. If the T-bill rate is 6%, what should the futures price be? b. What should the futures price be if the maturity of the contract is 2 years? c. What if the interest rate is 9% and the maturity of the contract is 2 years? Complete this question by entering your answers in the tabs below. Required A Required B Required C A futures contract on a non-dividend-paying stock index with current value $130 has a maturity of one year. If the T-bill rate is 6%, what should the futures price be? Note: Round your answer to 2 decimal places. Futures price
Consider these futures market data for the June delivery S&P 500 contract, exactly one year from today. The S&P 500 index is at 2,145, and the June maturity contract is at Fo = 2,146. a. If the current interest rate is 2.5%, and the average dividend rate of the stocks in the index is 1.9%, what fraction of the proceeds of stock short sales would need to be available to you to earn arbitrage profits? (Enter your answer in numbers and not in percentage. Eg; Enter 0.12 and not 12%. Do not round intermediate calculations. Round your answer to 4 decimal places.) Answer is complete but not entirely correct. Fraction 0.7787
1. Complete the following tables (the example from the course): We start with the assumption that the futures price is 100$ 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…
The following are call option premiums and futures settlement prices for ICE cotton. These prices were quoted on December 16th, 200X. These prices are used in problems 25 through 29 (recopied here for your convenience). Strike Price (cents/lb)_ 48.00 49.00 50.00 51.00 52.00 53.00 Futures close 6 18 12 24 Mar-OX none of the above. 2.56 1.98 1.48 1.09 .78 .55 49.60 May-OX QUESTION - Based on the above price data, there are. represented among both the Mar-OX and May-OX contracts. 6.14 5.33 4.59 3.92 3.31 2.74 53.69 individual options contracts being
You have the following information about LearnMore Inc.’s stock and a two-month call option with a strike price of $140.00. LearnMore Inc.’s current stock price is $100.00. You are using the multiperiod binomial option pricing model to find the value of the two-month option with two periods. ∏u∏u and ∏d∏d values given here apply to any period. Data Collected for LearnMore Inc. u 1.5032 d 0.5922 ∏u∏u 0.2357 ∏d∏d 0.3555 You work with a junior analyst to calculate the value of the option, and she submits her inferences to you. Which of the following points are true in the case of LearnMore Inc.’s stock options? Check all that apply. The option payoff if the stock goes up in two months will be $10.32. The value of the two-month call option with a strike price of $140.00 at the end of two months will be $2.43. The value of the call option will always remain $2.43, irrespective of the time until expiration. LearnMore Inc.’s stock price…
Assume that today's settlement price on a CME EUR futures contract is $1.1145/EUR. You have a long position in one contract. Your margin balance is currently of $2,763. The next three days' settlement prices are $1.1144, $1.1141, and $1.1148. Calculate the balance in the margin account after the third day due to dailly mark-to-market. The size of a futures contract on the euro is EUR125,000. Note: Enter your answer rounded to the nearest dollar. For example, if the calculated balance on the margin account after the third day of mark-to-market is $2,475.80, enter it as: 2476 or 2,476.

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