Assume that the effective 6-month interest rate is 2\%, the S&R 6-month forward price is $1020, and use the premiums in the table below for the S&R options with 6 months to expiration. Strike Call Put 1000 93.809 74.201 1020 84.470 84.470 Consider the ratio spread position on the S&R index consisting in buying four 1000-strike call options and selling three 1020-strike call options. a) Find the payoff as a function of S, the spot price of the S&R index in 6 months. b) Draw payoff and profit diagrams for this ratio spread position. c) For which values of the spot price S at expiration will this position outperform a long 1000-strike straddle?

Assume that the effective 6-month interest rate is 2\%, the S&R 6-month forward price is $1020, and use the premiums in the table below for the S&R options with 6 months to expiration. Strike Call Put 1000 93.809 74.201 1020 84.470 84.470 Consider the ratio spread position on the S&R index consisting in buying four 1000-strike call options and selling three 1020-strike call options. a) Find the payoff as a function of S, the spot price of the S&R index in 6 months. b) Draw payoff and profit diagrams for this ratio spread position. c) For which values of the spot price S at expiration will this position outperform a long 1000-strike straddle?

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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A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, compute the profit or loss from the long put position ONLY in 6 months if the market index is $810. $1.36 loss $1.46 gain $2.80 loss $3.45 gain
4. Consider a call option on the S&R index with 6 months to expiration and a strike price of $1000. Suppose that the effective rate compounded semiannually is 2% and the premium for this call is $93.81. (a) Draw the payoff and profit graphs for the call option holder. (b) If the S&R index price at expiration is $1100, will the owner exercise this option? What is the profit? (c) If the S&R index price at expiration is $900, will the owner exercise this option? What is the profit?
Put–call parity (S21-1) It is possible to buy three-month call options and three-month puts on stock Q. Both options have an exercise price of $60 and both are worth $10. If the interest rate is 5% a year, what is the stock price?
Give typing answer with explanation and conclusion to all parts Consider a put option whose underlying asset is a stock index with 6 months to expiration and a strike price of $1000. Suppose the risk-free interest rate for the six months is 2% and that the option’s premium is $74.20. (a) Find the future premium value in six months. (b) What is the buyer’s profit is the index spot price is $1100? (c) What is the buyer’s profit is the index spot price is $900
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…
The premium of a 3-month 40-strike call option on a stock currently sellingfor $40 is $2.78, and the premium for a 45-strike call option on the samestock is $0.97. Consider the bull spread achieved by purchasing the 40-strikecall and selling the 45-strike call. The risk-free effective annual interest rateis 8.33%.(a) Find the future value of the net premium.(b) Graph the pro t function of the bull spread.
Suppose you buy one SPX call option contract with a strike of 2200. At maturity, the S&P 500 index is at 2218. What is your net gain or loss if the premium you paid was $14? (Input the amount as a positive value.)
Consider a put option whose underlying asset is a stock index with 6 months to expiration and a strike price of $1000. Suppose the risk-free interest rate for the six months is 2% and that the option’s premium is $74.20. (a) Find the future premium value in six months. (b) What is the buyer’s profit is the index spot price is $1100? (c) What is the buyer’s profit is the index spot price is $900 Only typed answer
Suppose a stock is priced at $75 at expiriry and the annual interest rate is 8 %. Determine the profit at expirity for the following one-year european call options: A $ 70-strike call with premium $ 9.91 ? A $ 75-strike call with premium $ 6.03 A $ 80-strike call with premium $ 4.64 ? ?
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 1,950, and the June maturity contract is at F0 = 1,951.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?b. Suppose now that you in fact have access to 90% of the proceeds from a short sale. What is the lower bound on the futures price that rules out arbitrage opportunities?c. By how much does the actual futures price fall below the no-arbitrage bound?d. Formulate the appropriate arbitrage strategy, and calculate the profits to that strategy.
Assume you have taken a long position in an Amazon 1,850 Strike Price Call option. The $1,850 Strike Price Call option premium = $25. Amazon is currently trading at $1,865, the short-term interest rate = 2% and there are 2 months until expiry. Two months later, at expiration, Amazon had rallied to $1,875. What is the profit or loss on your Amazon 1,850 Strike Price Call option? (Please step by step solutions)
Answer the following question and give the specific process: What is the value of a derivative that pays off $100 in six months if an index is greater than 1,000 and zero otherwise? Assume that the current level of the index is 960, the risk-free rate is 8% per annum, the dividend yield on the index is 3% per annum, and the volatility of the index is 20%. (Hint: Use Binary options)

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