Log in
Finance
1
answer
0
watching
689
views

Refers to the information below:

S&R index level today (t=0) 900
Forward price (T=3 months) 918
Annualized 3-month interest rate 8% p.a.
Call option Premium (Strike = 900) 62.57
Put option Premium (Strike = 900) 44.92
Dividend Yield 0%
S&R index level 3 months later 930

(i) What is your profit 3 months later if you have taken a longposition on the stock at t=0?

(ii) What is your profit 3 months later if you have taken ashort position on the stock at t=0?

(iii) What is your payoff 3 months later if you have taken along position on the forward at t=0?

(iv) What is your profit 3 months later if you have taken ashort position on the forward at t=0?

(v) What is your payoff 3 months later if you have taken a longposition on the call option at t=0?

(vi) What is your profit 3 months later if you have taken a longposition on the call option at t=0?

(vii) What is your maximum profit 3 months later if you havetaken a long position on the call option at t=0?

(viii) What is your maximum loss 3 months later if you havetaken a long position on the call option at t=0?

Watch
1
answer
0
watching
689
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Reid Wolff
Reid WolffLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Suppose you enter into along 6-month forward position at a forward price of $60. What is the payoff in 6 months for prices of $50, $55, $60, $65, and $70? The payoff to a long forward at expiration is equal to: Payoff to long forward = Spot price at expiration−Forward price Therefore, the payoff in 6 months shown in the following table: Price of position in 6 months Payoff of the forward $50 - $10 55 - 5 60 0 65 5 $70 $10 2. Suppose that instead you buy a 6-month call option with a strike price of $60. What is the payoff in 6 months at the same prices for the underlying asset? Payoff = Price of underlying asset in 6-month - Strike price of 6-month call option = $60 - $60 = $0 or zero 3. Comparing the payoffs of parts (a) and (b), which contract should be more expensive (i.e., the long call or long forward)? Why is this so?

The spot price of an asset is $2,500. The European call option on the asset with strike price $2,400 that expires in 6 months is traded at $225. The asset will pay a dividend in 3 months of $200. The default free 3-month pure discount bond is traded at $98 and the 6-month pure discount bond is traded at $95, both with face value $100. There is also a forward contract and a European put option on the asset with the same strike price as the call, both expiring in 6 months.

Answer the following:

(a) What should the forward price be and why?

(b) What should the price of the put option be?

(c) Describe the strategy you will follow and compute the profit of your strategy if the put option is traded at $205.

(d) Suppose that there are no 6-month pure discount bonds. How can you borrow synthetically over 6 months and at what interest rate if the put option is traded at $205?

(e) Plot the profit diagram and compute lhe break-even point(s) of the strategy that goes long the asset and goes short two call options on the asset.

(f) PIot the payoff diagram ofthe strategy that goes long one call and one put option on the asset. This strategy can be considered a speculation on what?

You have a short position in a call option on Google stock where the strike price is $540. If Google closes at $550 on the day that the option expires, what will be your gross payoff per share (disregarding the upfront premium)?

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in