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)
Chapter 26 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 26 - Vocabulary check Define the following terms: a....Ch. 26 - Prob. 2PSCh. 26 - Catastrophe bonds On some catastrophe bonds,...Ch. 26 - Futures and options A gold-mining firm is...Ch. 26 - Prob. 5PSCh. 26 - Prob. 6PSCh. 26 - Futures contracts List some of the commodity...Ch. 26 - Prob. 8PSCh. 26 - Futures prices Calculate the value of a six-month...Ch. 26 - Futures prices In December 2017, six-month futures...
Ch. 26 - Prob. 11PSCh. 26 - Prob. 13PSCh. 26 - Prob. 15PSCh. 26 - Prob. 16PSCh. 26 - Prob. 17PSCh. 26 - Convenience yield In March 2018, six-month bitcoin...Ch. 26 - Prob. 19PSCh. 26 - Prob. 20PSCh. 26 - Total return swaps Is a total return swap on a...Ch. 26 - Prob. 22PSCh. 26 - Prob. 23PSCh. 26 - Hedging What is meant by delta () in the context...Ch. 26 - Hedging You own a 1 million portfolio of aerospace...Ch. 26 - Prob. 26PSCh. 26 - Prob. 27PSCh. 26 - Prob. 28PSCh. 26 - Hedging Price changes of two gold-mining stocks...Ch. 26 - Prob. 30PSCh. 26 - Prob. 31PSCh. 26 - Prob. 32PSCh. 26 - Prob. 33PSCh. 26 - You are a vice president of Rensselaer Advisers...
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