Which one of the following is correct regarding derivative securities? a. Options obligate investors to buy/sell securities at a specified price over a fixed period. Ob. The value of a stock option depends on the market price of the underlying stock. O C. Options are riskier than futures. Od. Calls and puts are the two common types of futures.

Which one of the following is correct regarding derivative securities? a. Options obligate investors to buy/sell securities at a specified price over a fixed period. Ob. The value of a stock option depends on the market price of the underlying stock. O C. Options are riskier than futures. Od. Calls and puts are the two common types of futures.

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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Time left 0:31:39 Which one of the following is correct regarding derivative securities? O a. Options obligate investors to buy/sell securities at a specified price over a fixed period. O b. The value of a stock option depends on the market price of the underlying stock. O c. Options are riskier than futures. O d. Calls and puts are the two common types of futures. Roger Federer purchased a single share of Credit Suisse common stock one year ago at a price of $32. In the past year, he received four quarterly dividends of $0.75 each. Today he sold the stock for $38. Roger's capital gain per share is: O a. 28%. O b. $3.00. C. $9.00. Od. $6.00. Clear my choice Next page
(a) The transferring of risk onto the clearing house is not something unique to futures trading. In fact, most of financial intermediaries such as insurance companies, finance companies and bank take on risk transferred to them and manage these risks. Based on the above statement, discuss the TWO (2) types of margins in derivatives markets. (b) You as a farmer have gone short 15 March Cocoa futures contracts. The 5-day period using hypothetical futures settlement prices. On the day 0 which both parties enter the contract. Given the following information, determine the daily marking-to-market adjustment to both you and the counterparty account. (Assuming same total value) Contract size = 10 tons per contract Initial margin = 10 percent of total value Maintenance margin = 70 percent of initial margin
Suppose the quoted futures price for delivery in 1 year is $7.10. The current underlying price is $7 and the continuously compounded interest rate is 5%. The underlying does not pay dividends. How could you make a riskless arbitrage profit? Question 2Answer a. buy futures contracts, short sell the stock and invest in a bank account b. borrow from the bank to buy futures contracts and short sell the stock c. sell futures contracts, borrow and buy the stock d. sell future contacts, short sell the stock and invest in a bank account
Solve a,b and c please You wish to create a synthetic equity position. You believe that the price of the stock will decrease over the next year. You have the following securities available to you to create this position. Note that all options are European and Beetroot Inc does not pay dividends. Current Value of Available Securities Beetroot Inc. Equity: $10.00 Call Premium: $ 5.31 Put Premium: $ 0.50 Strike for Call or Put: $14.00 Call and Put Expiration: 1 year Annual Risk-Free Rate (annually compounded): 3% per year a) Confirm that the put-call parity holds in this case. b)Specifically, identify the transactions that you will enter into to create your position? c)At expiration, the value of the equity will have increased or decreased. Show how your synthetic position will have the same payoff as a stock-only portfolio. Show this if Beetroot Inc’s equity if the equity value increases to $100 or decreases to $5.
PROBLEMS 1. The common stock of Sophia Enterprises serves as the underlying asset for the following derivative securities: (1) forward contracts, (2) European-style call options, and (3) European- style put options. a. Assuming that all Sophia derivatives expire at the same date in the future, complete a table similar to the following for each of the following contract positions: (1) A long position in a forward with a contract price of $50 (2) A long position in a call option with an exercise price of $50 and a front-end pre- mium expense of $5.20 Expiration Date Expiration Date Sophia Stock Price Derivative Payoff Derivative Premium Net Profit 25 30 35 40 45 50 55 60 65 Initial 70 75 (3) A short position in a call option with an exercise price of $50 and a front-end premium receipt of $5.20 In calculating net profit, ignore the time differential between the initial derivative ex- pense or receipt and the terminal payoff. b. Graph the net profit for each of the three derivative…
A Eurodollar futures price changes from 99.45 to 94.32. What is the gain or loss to an investor who is long 5 contracts? Choose the right answer: a. The investor makes gain – 128.25$ b. The investor makes loss – 641.25$ c. The investor makes loss – 195$ d. The investor makes gain – 195.25$ e. The investor makes loss – 128.25$
You enter into a 1-year futures contract on a non-dividend paying stock when the stock price is $100 and the risk-free interest rate is 5% per annum. Six months later the stock price has fallen to $90, and the interest rate is 4% per annum. Which of the answers below is closest to the change in the futures price? Assume discrete compounding and discounting. Question 6Answer a. -12.34 b. -11.40 c. -10.00 d. -13.20
Problem 4c: State whether the following statements are true or false. In each case, provide a brief explanation. c. An investor would like to purchase a European call option on an underlying stock index with a strike price of 210 and a time to maturity of 3 months, but this option is not actively traded. However, two otherwise identical call options are traded with strike prices of 200 and 220 respectively, hence the investor can replicate a call with a strike price of 210 by holding a static position in the two traded calls.
What is the difference between the long and the short positions in a contract for the future delivery of the S&P 500 stock index? If you expect stock prices to fall, do you buy or sell stock index futures?View Solution: What is the difference between the long and the short
Question 4 Consider the following: your purchased a put option on JPM two months ago, with a strike price for the option of $138, and the option expires today. Show work for all parts requiring computation. Suppose the stock price is $152. What is the exercise value? In general, how is the value of a put option affected by time (+/-/None), underlying asset volatility (+/-/None), and the current asset price (+/-/None)?
Suppose that you purchase a Treasury bond futures contract at $95 per $100 of face value. What is your obligation when you purchase this futures contract? If an FI purchases this contract, in what kind of hedge is it engaged? Assume that the Treasury bond futures price falls to 94. What is your loss or gain? Assume that the Treasury bond futures price rises to 97. Mark your position to market.
22) Consider an investor who owns stock XYZ. The stock is currently trading at $120. The investor worries that the outlooks for the market and the stock are not 5 favorable. The investor decides to protect his potential losses by using derivatives. Which one is a correct course of action given the investor's concerns? 123) Assume the same investor decided to purchase a European call option on stock ABC. Further assume that the current price of the stock is $130. The investor paid $10 for the call with the strike price at $155. (A)If the stock price goes up to $160, what is the payoff to the investor? (B) Further assumes that the investor also decided to sell a European put option on the same underlying with the same strike price of $155 and option cost of $10. What is the payoff to the investor when the stock price moves to $175? Which of the following combination of answers best capture the payoffs for situations escribed in A and B?

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