Suppose you pay 5 to buy a European (K = 100, t = 1/2) put option...
Suppose you pay 5 to buy a European (K = 100, t = 1/2) put option on a given security. Assuming a nominal annual interest rate of 6 percent, compounded monthly, find the present value of
your return from this investment if
(a) S(1/2) = 102;
(b) S(1/2) = 98.
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Suppose you pay 5 to buy a European (K = 100, t = 1/2) put
option...
Suppose, that you put $100 in the bank on January 1, 2017. This time around,
Question 22 Suppose, that you put $100 in the bank on January 1, 2017. This time around, however, the annual nominal interest rate is 6 percent and the inflation rate is 4 percent. Much to your chagrin, the federal government treats interest income like wages and salaries and you have to pay income tax. Suppose you are in the 25% income tax bracket. The real return on your investment, i.e. after you've paid your tax liability isNow, suppose that the nominal interest...
You purchase a European put option on XYZ stock with strike price 50. What is the...
You purchase a European put option on XYZ stock with strike price 50. What is the payoff to the option if XYZ stock is trading at 48 on the expiration day? You purchase a 1-year European call option on ABC stock with strike price 100. The option premium is $10. The effective annual interest rate is 10%, so that 100 dollars lent for 1 year will return 110 dollars. What is the PROFIT if ABC stock is trading at 111...
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with...
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with strike 100 and expiration 30 costs 11. Both options have the same stock as their underlying security. What is the price of the security whose payoff structure is 7S (30) 630, if S(30) 100, S(30)-30, if 90 S(30) S 100,...
Derivatives Markets 3. You own a 6-month European put option on a XYZ Company's stock with...
Derivatives Markets
3. You own a 6-month European put option on a XYZ Company's stock with a strike price of $100. The spot price of the stock is $102, it has a return volatility of 30% and currently pays no dividends. The continuously compounded risk free rate of interest is 3%. Using Black-Scholes you calculate the value of your put option to be $6.84. Now you have just learned the company is considering paying a one-time dividend in 3 months...
QUESTION 5 Suppose you want to buy a house that costs $750,000. You are required to...
QUESTION 5 Suppose you want to buy a house that costs $750,000. You are required to put 10% down, which means the amount to be borrowed is 90% of the price of the house. If you want a 30 year mortgage, and the borrowing rate is 5.6% APR compounded monthly, what would be your monthly payment? (Answer to the nearest penny) 5 points QUESTION 6 Suppose you want to buy a car that costs $17,000. If the dealer is...
For a 3-month European put option on a stock: (1) The stock's price is 41. (ii)...
For a 3-month European put option on a stock: (1) The stock's price is 41. (ii) The strike price is 45. (iii) The annual volatility of a prepaid forward on the stock is 0.25. (iv) The stock pays a dividend of 2 at the end of one month. (v) The continuously compounded risk-free interest rate is 0.05. Determine the Black-Scholes premium for the option.
1 In this problem c(K,T) denotes the price of a European call option with strike price...
1 In this problem c(K,T) denotes the price of a European call option with strike price K and strike time T, p(K,T) is the price of the identical put option, r is the risk-free rate and So is the current price of the underlying security. Which of the following are correct? i 0 <c(50,T) - c(55,T) <5e-rT ii 50e-rT <p(45, T) - c(50,T) + So < 55e-rT iii 45e-T <p(45, T) - c(50,T) + So < 50e-rT
Problem 1. 1. Calculate the price of a six-month European put option on a non-dividend-paying stock...
Problem 1. 1. Calculate the price of a six-month European put option on a non-dividend-paying stock with an exercise price of $90 when the current stock price is $100, the annualized riskless rate of interest is 3%, and the volatility is 40% per year. 2. Calculate the price of a six-month European call option with an exercise price on this same stock a non-dividend-paying stock with an exercise price of $90. Problem 2. Re-calculate the put and call option prices...
You purchase a 1-year European call option on ABC stock with strike price 100. The option...
You purchase a 1-year European call option on ABC stock with strike price 100. The option premium is $10. The effective annual interest rate is 10%, so that 100 dollars lent for 1 year will return 110 dollars. What is the PROFIT if ABC stock is trading at 111 on the expiration day?
Suppose S=25, sigma=32%,r=4%,delta=0%, and T=182 days. Suppose you buy a 23-strike put. Suppose S=25, sigma =...
Suppose S=25, sigma=32%,r=4%,delta=0%, and T=182 days. Suppose
you buy a 23-strike put.
Suppose S=25, sigma = 32%, r=4%, 8= 0%, and T = 182 days. Suppose you buy a 23-strike put. What is delta? If the option is on 100 shares, what investment is required for a delta-hedged portfolio? What is your overnight profit if the stock price tomorrow is S = 24.55? What if the stock price is $26.25?
Question 22 Suppose, that you put $100 in the bank on January 1, 2017. This time around, however, the annual nominal interest rate is 6 percent and the inflation rate is 4 percent. Much to your chagrin, the federal government treats interest income like wages and salaries and you have to pay income tax. Suppose you are in the 25% income tax bracket. The real return on your investment, i.e. after you've paid your tax liability isNow, suppose that the nominal interest...
You purchase a European put option on XYZ stock with strike price 50. What is the payoff to the option if XYZ stock is trading at 48 on the expiration day? You purchase a 1-year European call option on ABC stock with strike price 100. The option premium is $10. The effective annual interest rate is 10%, so that 100 dollars lent for 1 year will return 110 dollars. What is the PROFIT if ABC stock is trading at 111...
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with strike 100 and expiration 30 costs 11. Both options have the same stock as their underlying security. What is the price of the security whose payoff structure is 7S (30) 630, if S(30) 100, S(30)-30, if 90 S(30) S 100,...
Derivatives Markets
3. You own a 6-month European put option on a XYZ Company's stock with a strike price of $100. The spot price of the stock is $102, it has a return volatility of 30% and currently pays no dividends. The continuously compounded risk free rate of interest is 3%. Using Black-Scholes you calculate the value of your put option to be $6.84. Now you have just learned the company is considering paying a one-time dividend in 3 months...
For a 3-month European put option on a stock: (1) The stock's price is 41. (ii) The strike price is 45. (iii) The annual volatility of a prepaid forward on the stock is 0.25. (iv) The stock pays a dividend of 2 at the end of one month. (v) The continuously compounded risk-free interest rate is 0.05. Determine the Black-Scholes premium for the option.
1 In this problem c(K,T) denotes the price of a European call option with strike price K and strike time T, p(K,T) is the price of the identical put option, r is the risk-free rate and So is the current price of the underlying security. Which of the following are correct? i 0 <c(50,T) - c(55,T) <5e-rT ii 50e-rT <p(45, T) - c(50,T) + So < 55e-rT iii 45e-T <p(45, T) - c(50,T) + So < 50e-rT
Suppose S=25, sigma=32%,r=4%,delta=0%, and T=182 days. Suppose
you buy a 23-strike put.
Suppose S=25, sigma = 32%, r=4%, 8= 0%, and T = 182 days. Suppose you buy a 23-strike put. What is delta? If the option is on 100 shares, what investment is required for a delta-hedged portfolio? What is your overnight profit if the stock price tomorrow is S = 24.55? What if the stock price is $26.25?
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