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 expirationâForward 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?
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 expirationâForward 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?
Related questions
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?
