The face value of any bond below is $100. For coupon bonds, coupons are paid every...

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The face value of any bond below is $100. For coupon bonds, coupons are paid every 6 months.

2. (4 points) An investor buys 1000 shares of a stock at $200 per share. She also buys 1000 one-month put options with strike

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Answer 1

Answer #1

Investment on shares = $200 * 1000 = $200,000

Investment on purchase of Put options = $5 * 1000 = $5000

Total investment = $200,000 + $ 5000 = $205,000

Cost per share = Total investment / Total shares = $205000/1000 = $205

I.e.net cost of each share to the investor is $205 and not $200

So investor will have a loss if share price < $205

Given : Strike Price is $198 that means she will get at least $198 per share

so maximal loss per share in a month = $205-$198 = $7

so total loss = loss per share * total shares = $7 * 1000 = $7000

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Answer 2

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