Homework Answers
7. Payoff of the put option= Max[K-S, 0]
Hence maximum payoff = K = strike price, when
ST beomes 0.
Payoff of the put option= Max[S-K, 0]
Hence maximum payoff can be infinity.
8. Yes, it can happen when the stock is expected to rise in a great amount before or at the expiration.
9. American option can be exercised anytime before the expiration and hence longer time to expiration means more chances to grow.
Please do rate me and mention doubts, if any, in the comments section.
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Time till expiration: four months / Contract expires on March
15, 2020
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7-is/ is not
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PROBLEM №1
What is a forward price of an index JKL given the following
information?
Date of pricing: November 15, 2019
Time till expiration: four months / Contract expires on March
15, 2020
Current value of an index: 2 803
Continuously compounded interest rate: 4.5 %
Continuously compounded dividend yield: 2.3%
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What is the value of the forward contract (specified in
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1-risk/return
2-equal to/greater or less than
3-self contained/stand-alone
4-variance/standard deviation
5-variance/beta coefficient
6-diversifiable/non-diversiable
7-is/ is not
8-diversifiable/non-diversifiable
9-random/non random
10-decreasing/increasing
11-2000+/500
12-reduces/increases
13-systematic of market/unsystematic or company-specific
14-diversifiable/non diversifiable
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