ZuoTi.Pro
Question

Below is a list of call option premiums with different strike prices. The options mature 1 year later.

Strike price Premium 48 49 50 51 52 8.13 7.61 7.12 6.65 6.20

The current stock price is 50. The risk-free interest rate is 5% p.a., continuously compounded.

(i) Find out the cost of the following payoff diagram:

ST 50 52

(ii) What is the price such that the above strategy is break-even?

(iii) Find out the cost of the following payoff diagram:

Payoff ST 48 50

(iv) Find out the cost of the following payoff diagram:

Payoff ST 49 51

(v) Find out the cost of the following payoff diagram:

Payoff ST 49 50 51

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

4 Buy call at 50 Sold call at 52 7.12 0.92 Break even price 50.92 10 -8.13 7.12 1.01 Sold call at 48 Buy call at 50 12 13 Sell call at 49 Buy call at 49 Sell call at 51 (iv) 16 I 17 18 19 7.12 6.65 7.14

0 1
Add a comment
Know the answer?
Add Answer to:
Below is a list of call option premiums with different strike prices. The options mature 1...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Below is a list of call and put option premiums with different strike prices. The options...

    Below is a list of call and put option premiums with different strike prices. The options mature 1 year later. The current stock price is 900. The risk-free interest rate is 6% p.a., continuously compounded. (i) Find out the cost of the following payoff diagram: (ii) Find out the cost of the following payoff diagram: (iii) Find out the cost of the following payoff diagram: (iv) Find out the cost of the following payoff diagram: (v) What is the price...

  • (i) The current stock price is 100. The call option premium with a strike price 100...

    (i) The current stock price is 100. The call option premium with a strike price 100 is 8. The effective risk-free interest rate is 2%. The stock pays no dividend. What is the price of a put option with strike price 100? (Both options mature in 3 months.) (ii) The 3-month forward price is 50. The put option premium with a strike price 52 is 3 and the put option matures in 3 months. The risk-free interest rate is 4%...

  • You are attempting to formulate an investment strategy. In particular, you short a put option with strike price X1 equal...

    You are attempting to formulate an investment strategy. In particular, you short a put option with strike price X1 equals to $95 and you long another put option with strike price X2 equals to $115. Both put options have the same underlying stock and will expire at time T. (a) Plot the payoff structure of this investment strategy as a function of ST, which stands for the price of the underlying stock at maturity. The X-axis for St and the...

  • Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and...

    Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and $7, respectively. 1) How can one create a butterfly spread using these options? 2) Please draw the payoff and profit diagrams of this butterfly strategy. 3) What are the maximum gain and maximum loss of the butterfly spread created using these put options? 4) For which two values of ST does the holder of the butterfly spread break even (with a profit of zero),...

  • Assume the following premia: Strike $950 Call $120.405 93.809 84.470 71.802 51.873 Put $51.777 74.201 1000...

    Assume the following premia: Strike $950 Call $120.405 93.809 84.470 71.802 51.873 Put $51.777 74.201 1000 1020 84.470 101.214 1050 1107 137.167 I 1) Suppose you invest in the S&P stock index for $1000, buy a 950-strike put, and sell a 1050- strike call. Draw a profit diagram for this position. What is the net option premium? 2) Here is a quote from an investment website about an investment strategy using options: One strategy investors apply is a "synthetic stock."...

  • 1. Consider the following information about a European call option on stock ABC: . The strike...

    1. Consider the following information about a European call option on stock ABC: . The strike price is S100 The current stock price is $110 The time to expiration is one year The annual continuously-compounded risk-free rate is 5% ·The continuous dividend yield is 3.5% Volatility is 30% . The length of period is 4 months. Find the risk-neutral probability p*. Hint: 45.68%

  • Question 1 Assume Alpha Ltd is currently trading on the NYSE with a stock price of $65. The American one-year call option on the stock is trading at $20 with strike price of $65. If the one-year rate...

    Question 1 Assume Alpha Ltd is currently trading on the NYSE with a stock price of $65. The American one-year call option on the stock is trading at $20 with strike price of $65. If the one-year rate of interest is 10% p.a. (continuously compounding), is the call price free from arbitrage or is it too cheap/expensive, assuming that the stock pays no dividends? What if the stock pays a dividend of $5 in one year? Question 2 The current...

  • #1 The following options on American Euro Call options are available. The current spot price of...

    #1 The following options on American Euro Call options are available. The current spot price of the Euro is $1.00/Euro. You care going to construct a short butterfly spread that entails: Sell 1 in the money call Buy 2 at the money Calls (lower strike than sold call above) Sell 1 out of the money call This strategy is outlined below in the table, the first column tells you which position to take in each option contract. Decision Type Premium...

  • 1. Consider a call option selling for $ 4 in which the exercise price is $50....

    1. Consider a call option selling for $ 4 in which the exercise price is $50. A) Determine the value at expiration and the profit for a buyer under the following outcomes: i. The price of the underlying at expiration is $55 ii. The price of the underlying at expiration is $51 iii. The price of the underlying at expiration is $48 B) Determine the value at expiration and the profit for a seller under the following outcomes: i. The...

  • 1. Draw payoff diagrams for the following option trading strategies. Assume all options have the same...

    1. Draw payoff diagrams for the following option trading strategies. Assume all options have the same expiration date. a. Buy a share and write a call on the stock b. Buy a call with exercise price X1 and write a call with an exercise price X2 on the same stock, with X1 < X2. c. Buy a call with exercise price X1, sell two calls with exercise price X2 and buy a call with exercise price X3 with X1 X2...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT