3.3 Suppose you buy theS&Rindex for $1000 and buy a 950-strike put. Construct payoff and profit diagrams for this position. Verify that you obtain the same payoff and profit diagram by investing $931.37 in zero-coupon bonds and buying a 950-strike call.
3.3 Suppose you buy theS&Rindex for $1000 and buy a 950-strike put. Construct payoff and profit diagrams for this position. Verify that you obtain the same payoff and profit diagram by investing $931.37 in zero-coupon bonds and buying a 950-strike call.
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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Transcribed Image Text:3.3 Suppose you buy theS&Rindex for $1000 and buy a 950-strike put. Construct payoff
and profit diagrams for this position. Verify that you obtain the same payoff and profit
diagram by investing $931.37 in zero-coupon bonds and buying a 950-strike call.
Transcribed Image Text:For the following problems assume the effective 6-month interest rate is 2%, the S&R 6-
month forward price is $1020, and use these premiums for S&R options with 6 months to
expiration:
Strike
$950
1000
1020
1050
1107
Call
$120.405
93.809
84.470
71.802
51.873
Put
$51.777
74.201
84.470
101.214
137.167
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