PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 26, Problem 23PS
Summary Introduction

To discuss: Whether the given remark is fair.

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You believe that oil prices will be rising more than expected, and that nsing prices will result in lower earnings for industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector will be magnified because consumer demand will fall as oil prices rise. You locate an exchange traded fund, QLT, that represents a basket of industrial companies. You don't want to short the ETF because you don't have enough margin in your account. QLT is currently trading at $32.19. You decide to buy a put option (for 100 shares) with a strike price of $33.50, priced at $2.29. What is your profit if you are wrong and the price of XLB increases to $35.50 on the expiration date? (Click on the icon here in order to copy the contents of the data table below into a spreadsheet) QLT: Materials-$32.19 Strike $31.00 $33.50 Calls Expiration Price $1.26 November November $1.26 Puts Expiration Price November $2.58 $2,29 Strike $31.00 $33.50…
You believe that oil prices will be rising more than expected, and that rising prices will result in lower earnings for industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector will be magnified because consumer demand will fall as oil prices rise. You locate an exchange traded fund, QLT, that represents a basket of industrial companies. You don't want to short the ETF because you don't have enough margin in your account. QLT is currently trading at $32.68. You decide to buy a put option (for 100 shares) with a strike price of $33.90, priced at $2.26. It turns out that you are correct. At expiration, QLT is trading at $30.05. Calculate your profit. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) QLT: Materials-$32.68 Calls Price Strike Expiration $30.05 November $1.26 $33.90 November $1.26 The profit of the trade before trading costs is $ Puts Expiration…
True or False Question: Southwest Airlines is exposed to risk to fluctuations in jet fuel prices. One way they can partially hedge this risk is to short crude oil futures. (True or False)
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