Homework Answers
The correct answer to the above statement is b. (Buying a call, selling ABC stock, and buying a zero coupon bond).
It can be represented as p + S0 = c + Ke-rT
The value of call + PV of Strike Price = Put Value + Price of the share
It is also known as Put - Call Parity and is often used for the purpose of getting arbitrage opportunities on different portfolios. The ultimate aim is to benefit from the pricing mismatch and similarity of calls and put options.
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d. $5.00 According to put-call parity for European options, purchasing a put option on ABC stock...
A synthetic European put option is created by: Buying the discount bond, buying the call option,...
A synthetic European put option is created by: Buying the discount bond, buying the call option, and short-selling the stock. Buying the call option, short-selling the discount bond, and short-selling the stock. Short-selling the stock, buying the discount bond, and selling the call option.
4. A trader buys a European call option and sells a European put option. The options...
4. A trader buys a European call option and sells a European put option. The options have the same underlying asset, strike price and maturity. Show that the trader's position is equivalent to a forward contract with delivery price that is equal to the strike price of the options.
A put option and a call option on a stock have the same expiration date and the same exercise (or strike price). Both options expire in 6 months. Assume that put-call parity holds and interest rate is...
A put option and a call option on a stock have the same expiration date and the same exercise (or strike price). Both options expire in 6 months. Assume that put-call parity holds and interest rate is positive. If both call and put options have the same price, which of the following is true? A) Put option is in-the-money. B) Call option is in-the-money. C) Both call and put options are in-the-money. D) Both call and put options are out-of-the-money.
Put-call parity suggests that Select one: a. the sum of the prices of a stock and...
Put-call parity suggests that Select one: a. the sum of the prices of a stock and a call equal zero b. the sum of the prices of a put and a call equal zero c. the sum of the prices of a stock, a call, a put, and a bond equal zero d. sum of the prices of a stock and a put must equal the sum of the prices of a call and a discounted bond with the maturity...
ABC, a non-dividend paying stock Details of European option prices follows on are as Option type...
ABC, a non-dividend paying stock Details of European option prices follows on are as Option type Exercise price Option premium Call on Stock ABC $17.50 $20 $5.50 $3.50 Required: Create a call ratio spread by using the above options. A call ratio spread consists of taking a long position in a bull spread and selling another call on the same stock with the strike price of $20. Draw the profit and loss diagram (on the following page) of the call...
(a) State the Black-Scholes formulas for the prices at time 0 of a European call and put options on a non-dividend-paying stock ABC
2. (a) State the Black-Scholes formulas for the prices at time 0 of a European call and put options on a non-dividend-paying stock ABC.(b) Consider an option on a non-dividend paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 20% per annum, and the time to maturity is 5 months. What is the price of the option if it is a European call?
A six-month European call option on a non-dividend-paying stock is currently selling for $6. The stock...
A six-month European call option on a non-dividend-paying stock is currently selling for $6. The stock price is$64, the strike price is S60. The risk-free interest rate is 12% per annum for all maturities. what opportunities are there for an arbitrageur? (2 points) 1. a. What should be the minimum price of the call option? Does an arbitrage opportunity exist? b. How would you form an arbitrage? What is the arbitrage profit at Time 0? Complete the following table. c....
3. Put-call Parity Sad Corp (SC) is a distressed firm that is not expected to pay...
3. Put-call Parity Sad Corp (SC) is a distressed firm that is not expected to pay dividends over the next year. SC stock is currently at $10, and it costs $7 to buy an at-the money call option on SC maturing one year from now. The price of a riskfree zero-coupon bond with a face of $ 100 maturing one year from now is $95. Assume there is no arbitrage. a. (5 points) If the call option described above is...
Given the following parameters use put-call parity to determine the price of a put option with...
Given the following parameters use put-call parity to determine the price of a put option with the same exercise price. Current stock price: $48.00 Call option exercise price: $50.00 Sales price of call options: $3.80 Months until expiration of call options: 3 Risk free rate: 2.6 percent Compounding: Continuous A) Price of put option = $5.48 B) Price of put option = $4.52 C) Price of put option = $6.13
Given the following parameters use put-call parity to determine the price of a put option with...
Given the following parameters use put-call parity to determine the price of a put option with the same exercise price. Show your work. Current stock price: $48.00 Call option exercise price: $50.00 Sales price of call options: $3.80 Months until expiration of call options: 3 Risk free rate: 2.6 percent Compounding: Continuous A) Price of put option = $5.48 B) Price of put option = $4.52 C) Price of put option = $6.13
4. A trader buys a European call option and sells a European put option. The options have the same underlying asset, strike price and maturity. Show that the trader's position is equivalent to a forward contract with delivery price that is equal to the strike price of the options.
ABC, a non-dividend paying stock Details of European option prices follows on are as Option type Exercise price Option premium Call on Stock ABC $17.50 $20 $5.50 $3.50 Required: Create a call ratio spread by using the above options. A call ratio spread consists of taking a long position in a bull spread and selling another call on the same stock with the strike price of $20. Draw the profit and loss diagram (on the following page) of the call...
A six-month European call option on a non-dividend-paying stock is currently selling for $6. The stock price is$64, the strike price is S60. The risk-free interest rate is 12% per annum for all maturities. what opportunities are there for an arbitrageur? (2 points) 1. a. What should be the minimum price of the call option? Does an arbitrage opportunity exist? b. How would you form an arbitrage? What is the arbitrage profit at Time 0? Complete the following table. c....
3. Put-call Parity Sad Corp (SC) is a distressed firm that is not expected to pay dividends over the next year. SC stock is currently at $10, and it costs $7 to buy an at-the money call option on SC maturing one year from now. The price of a riskfree zero-coupon bond with a face of $ 100 maturing one year from now is $95. Assume there is no arbitrage. a. (5 points) If the call option described above is...
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