3. The price of a stock is $50. The price of a 1-year put option on the stock with a strike price of $40 is quoted as $10 and the price of a 1-year European call option on the stock with a strike price of $60 is quoted as $8. Suppose that an investor buys 50 shares, shorts 50 call options and buys 50 put options. Fill the table Please fill the table for 50 shares and 50 calls and 50 puts. $60 $45 Stock price (ST) in the market Profit for buying 50 shares of $25 $30 $40 $50 $55 stock Option value (Pay off) Short 50 calls Premium for 50 calls Profit from shorting 50 call options Option value (Pay off) Buy 50 puts Premium for 50 puts Profit from buying 50 put options TOTAL Profit

3. The price of a stock is $50. The price of a 1-year put option on the stock with a strike price of $40 is quoted as $10 and the price of a 1-year European call option on the stock with a strike price of $60 is quoted as $8. Suppose that an investor buys 50 shares, shorts 50 call options and buys 50 put options. Fill the table Please fill the table for 50 shares and 50 calls and 50 puts. $60 $45 Stock price (ST) in the market Profit for buying 50 shares of $25 $30 $40 $50 $55 stock Option value (Pay off) Short 50 calls Premium for 50 calls Profit from shorting 50 call options Option value (Pay off) Buy 50 puts Premium for 50 puts Profit from buying 50 put options TOTAL Profit

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A stock's current price is $20 and a 3-month call with a strike price of $22 sells for $2. You have $4,000 to invest and are comparing two alternate strategies: 1) Buy 200 shares of the stock; 2) Buy 2,000 call options on the stock. Which of the following is correct? The two strategies are equally profitable when the stock price is $26.00 O b. The two strategies are equally profitable when the stock price is $22.00 О с. The option strategy is more profitable when the stock price is $26.00 LO
A stock market speculator can choose between (i) buying 1000 shares ofa certain stock for $80 per share, and (ii) buying 10, 000 European-stylecall options on the stock with a strike price of $90 for $8 per option.Which of the following is true? For choice (ii) to give a better result whenthe option matures, the share price must be above:
5.You would like to speculate on a rise in the price of a certain stock. The current stock price is $30 and a 3-month call with a strike price of $32 costs $3. You have $6000 to invest. Identify two alternative investment strategies, one in the stock and the other in an option on the stock (Tell me exactly what you would do in each strategy and calculate the total profit for different stock prices. How many shares/options you would buy/sell?) Strategy 1 (stock): Stock price (ST) in the market Profit from strategy 1 $25 $30 $32 $35 $40 $45 a) Would you buy or sell stocks? b) How many stocks would you buy or sell? c) How will you make money? %24
H4.
A stock is priced at $30. An American call option on this stock with a $25 strike must be worth at least how much?
Suppose the price of a share of Google stock is $500. An April call option on Google stock has a premium of $5 and an exercise price of $500. The holder of the call option will earn a profit if the price of the share A. increases to $504. B. decreases to $490. C. increases to $506. D. decreases to $496.
A speculator can choose between (i) buying 108 shares of a stock for $50.58 per share, and (ii) buying 1080 European call options on that stock with a strike price of $42 for $3.99 per option. At maturity, what is the stock price that would make the two alternatives equally profitable? a. 1.58 O b. 42.81 O c. 47.57 d. 45.96 e. 14.18
V4. Using a two-step binomial tree, calculate the value of an American call option where the underlying stock pays a dividend of $1 per share just before the option’s expiration. The stock is trading at $22, the strike is $20, the risk-free rate is 4%. The option is outstanding for another two years (each step in the binomial tree is one year long). The stock is expected to rise or fall 10% in each one-year period prior to expiry. Can you please explain/show in Excel including formulas.
You buy a share of stock, write a 1-year call option with X = $85, and buy a 1-year put option with X = $85. Your net outlay to establish the entire portfolio is $83.3. Required: What is the payoff of your portfolio? What must be the risk-free interest rate? The stock pays no dividends. Note: Round your answer to 2 decimal places.
Give typing answer with explanation and conclusion The XYZ Corporation stock currently sells for $52/share. The premium for a put option expiring in four weeks is $2.07. Suppose you buy 5 contracts of this put option. What is your maximum gain? (Hint: One option is called a contract, and each contract represents 100 shares of the underlying stock. Exchanges quote options prices in terms of the per-share price, not the total price an investor pays to own the contract.) A) $22,715 B) $26,000 C) $24,965 D) $23,750
Previously, you purchased a European put option on Parlicoot Inc shares. The option has just matured. The strike price on the option is 98.17, while the current stock price is 89.19. What is your payoff?
Let there exist a non-dividend-paying stock, A, which has a current price of $80. Let there exist another stock, B, which has a current price of $100. Stock B will continuously pay dividends at a dividend yield of x. A one-year European exchange call option with underlying asset A and strike asset B is sold for $5, while a one-year European exchange put option with underlying asset A and strike asset B is sold for $15. 12% is the continuously compounded, risk-free interest rate. Calculate the value of stock B's dividend yield, x.

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