Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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TSLA stock price is currently at $600. The $700-strike European TSLA call option expiring on March 2021 has a delta of 0.43, N(d2) of the option is 0.28. Assume zero interest rate and no dividend. Compute the Black-Merton-Scholes delta (in decimals with correct signs) of the TSLA European put option at the same strike and expiry. (round to 0.01)
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- Calculate the European call and put option on the basis of the following data: Consider the following facts regarding Bank Windhoek, which is publicly traded on the Namibian Stock Exchange (NSX): The current stock price is N $18, the exercise price is N $16, the duration of the option is 180 days, the volatility is 35%, and the risk-free rate is 8%. Show all your calculations. 1. What is the value of the European call option? 2. What is the value of the European put option? 3. Comment on the Value for both the European call & put options. 4. Why is a Black Scholes Merton model used to price optionsarrow_forwardWhat is the appropriate risk-free rate on May 11, 2022 for an option that expires on Oct 20, 2022 if the T-bill with closest maturity is quoted as 3.65/3.44? a. What is the un-annualized discount rate? Round your answer to two decimals. b. What is the T-bill price? Round your answer to two decimals b . What is the approximate risk-free rate? % Round your answer to two decimalsarrow_forwardAssume the spot Swiss franc is $0.7040 and the six-month forward rate is $0.7030. What is the Value of a six-month call and a put option with a strike price of $0.6840 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the European option-pricing models to value the call and put option. This problem can be solved using the FXOPM.xls spreadsheet. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Option Call Put Value cents centsarrow_forward
- 1. For each of the following cases, calculate (i) the cashflow paid or received today on entering the position, (ii) the gross payoff at expiry, and (iii) the net payoff from your option trading All options are European style and cover 100 shares in the underlying asset. a) You enter a long call option with a strike price of $6 and premium of $2.30. At expiry, the share price is $7.80. b) You enter a long call option with a strike price of $9 and premium of $0.80. At expiry, the share price is $7.90. c) You enter a short call option with an exercise price of $5 and premium of $0.70. The share price at expiry is $5.40. d) You enter a short call option with an exercise price of $5 and premium of $0.70. The share price at expiry is $4.90. e) You buy a long - put option with a strike price of $10 for a premium of $ 1.20. At expiry, the share price is $8.50. f) You write (i. e., short) a put option with strike price $7 for a premium of $0.60. At expiry, the share price is $5.arrow_forwardAssume the spot Swiss franc is $0.7045 and the six-month forward rate is $0.7040. What is the Value of a six-month call and a put option with a strike price of $0.6845 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the European option-pricing models to value the call and put option. This problem can be solved using the FXOPM.xls spreadsheet. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Option Call Put Value cents centsarrow_forwardA stock price is currently $52. Its volatility is 35% p.a. . The risk-free interest rate is 8% p.a. with continuous compounding. What is the value of a 2-year European call option with a strike price of $55, using a 2-step binomial tree? Without doing any calculations, explain what would happen to the value of the option if the stock volatility decreasesarrow_forward
- (a) The table below gives information about European options with a maturity date of 6 months. Type Of option Strike Price Call 65 Call 58 Put 65 Premium 5 8 4 (i) Devise the payoff profile of the hedging strategy from the above for an investor betting on an increase in the stock price and calculate the payoff if the stock price increases to $66 after 6 months. (8 marks) (ii) Suppose that another investor expects a big stock price movement but is not sure of the direction. She however bets that the downward movement is more likely. Devise the corresponding trading strategy and calculate the payoff if the stock price is $55 after 6 months. (8 marks) (b) By analysing the pay off profiles of a protective put strategy and a straddle, discuss in what ways these strategies shield the investor from potential losses.arrow_forwardWhen the non-dividend paying stock price is $20, the strike price is $20, the risk-free rate is 5%, the volatility is 20% and the time to maturity is 3 months which of the following is the price of a European put option on the stock? N(.) denotes standard normal distribution values. O 20N(-0.1)-20N(-0.2) 20N(-0.2)-20N(-0.1) O 19.7N(-0.2)-20N(-0.1) O None of these O 19.7N(-0.1)-20N (-0.2)arrow_forwardWhat is the rho of a European put option with the following parameters? As a reminder, rho is defined as the first derivative of the option price with respect to the risk free rate. s0 = $40k = $39 r = 10%sigma = 20%T = 0.75 years (required precision 0.01 +/- 0.01) Greeks Reference Guide: Delta = ∂π/∂S Theta = ∂π/∂t Gamma = (∂2π)/(∂S2) Vega = ∂π/∂σ Rho = ∂π/∂rarrow_forward
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