22/ You have a long position in a stock and a short position in a call option on the stock. The current price of the stock is $20. In 3 months, it will either be $24 or $16. The 3-month call option has a strike price of $20. The risk-free rate is 10% for all maturities. Calculate the value of the option using a one-step binomial model. A. $0.251 B. $7.802 C. $2.198 D. $2.682 Answer: Solution: 23/ 24/ With respect to put-call parity, a protective put consists of a European: A. Put option and the underlying asset. B. Call option and the underlying asset. C. Put option and the zero-coupon bond. D. Call option and the zero-coupon bond. Consider an option strategy of buying one $50 strike put for $7, selling two $42 strikes puts for $4 each, and buying one $37 put for $2. All options have the same maturity. Calculate the final profit per share of the strategy if the underlying is trading at $33 at expiration. A. $1 per share. B. $2 per share. C. $3 per share. D. $4 per share. Answer: Solution: 5/ An investor decides that it would be prudent to temporarily hedge the 100,000 shares of a company named APOTH she owns. She intends to implement a hedging strategy using 6-month European options and gather the date in the following table: Option W X Y Z Type of option Call Call Put Put Exercise price $38 $46 $38 $36 N(d1) 0.56 0.30 0.56 0.64 N(d2) 0.45 0.21 0.45 0.53 The number of option X contracts that the investor would have to sell to implement the hedge strategy would be closest to: 8
22/ You have a long position in a stock and a short position in a call option on the stock. The current price of the stock is $20. In 3 months, it will either be $24 or $16. The 3-month call option has a strike price of $20. The risk-free rate is 10% for all maturities. Calculate the value of the option using a one-step binomial model. A. $0.251 B. $7.802 C. $2.198 D. $2.682 Answer: Solution: 23/ 24/ With respect to put-call parity, a protective put consists of a European: A. Put option and the underlying asset. B. Call option and the underlying asset. C. Put option and the zero-coupon bond. D. Call option and the zero-coupon bond. Consider an option strategy of buying one $50 strike put for $7, selling two $42 strikes puts for $4 each, and buying one $37 put for $2. All options have the same maturity. Calculate the final profit per share of the strategy if the underlying is trading at $33 at expiration. A. $1 per share. B. $2 per share. C. $3 per share. D. $4 per share. Answer: Solution: 5/ An investor decides that it would be prudent to temporarily hedge the 100,000 shares of a company named APOTH she owns. She intends to implement a hedging strategy using 6-month European options and gather the date in the following table: Option W X Y Z Type of option Call Call Put Put Exercise price $38 $46 $38 $36 N(d1) 0.56 0.30 0.56 0.64 N(d2) 0.45 0.21 0.45 0.53 The number of option X contracts that the investor would have to sell to implement the hedge strategy would be closest to: 8
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
not use ai please
Transcribed Image Text:22/
You have a long position in a stock and a short position in a call option on the stock.
The current price of the stock is $20. In 3 months, it will either be $24 or $16. The
3-month call option has a strike price of $20. The risk-free rate is 10% for all
maturities. Calculate the value of the option using a one-step binomial model.
A. $0.251
B. $7.802
C. $2.198
D. $2.682
Answer: Solution:
23/
24/
With respect to put-call parity, a protective put consists of a European:
A. Put option and the underlying asset.
B. Call option and the underlying asset.
C. Put option and the zero-coupon bond.
D. Call option and the zero-coupon bond.
Consider an option strategy of buying one $50 strike put for $7, selling two $42
strikes puts for $4 each, and buying one $37 put for $2. All options have the same
maturity. Calculate the final profit per share of the strategy if the underlying is
trading at $33 at expiration.
A. $1 per share.
B. $2 per share.
C. $3 per share.
D. $4 per share.
Answer: Solution:
5/
An investor decides that it would be prudent to temporarily hedge the 100,000 shares
of a company named APOTH she owns. She intends to implement a hedging
strategy using 6-month European options and gather the date in the following table:
Option
W
X
Y
Z
Type of option
Call
Call
Put
Put
Exercise price
$38
$46
$38
$36
N(d1)
0.56
0.30
0.56
0.64
N(d2)
0.45
0.21
0.45
0.53
The number of option X contracts that the investor would have to sell to implement
the hedge strategy would be closest to:
8
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 5 images
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education