5) The current price of UCD Inc. is $15 per share; put options and call options on the stock both have a strike price of $15 and are selling for $0.75 per option. a) Suppose on the expiration date the price of UCD Inc. ends up being $18 per share. What is the profit/loss on a portfolio that has 1 share of stock and a long 1 put option? What about one that has 1 share of stock and is a short 1 call option? b) Suppose someone had bought 50 call options and the price ends up being $18 per share. What would be the profit/loss on that?

5) The current price of UCD Inc. is $15 per share; put options and call options on the stock both have a strike price of $15 and are selling for $0.75 per option. a) Suppose on the expiration date the price of UCD Inc. ends up being $18 per share. What is the profit/loss on a portfolio that has 1 share of stock and a long 1 put option? What about one that has 1 share of stock and is a short 1 call option? b) Suppose someone had bought 50 call options and the price ends up being $18 per share. What would be the profit/loss on that?

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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Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two for one in the last period. Stock A B C Po 90 45 80 90 425 450 650 a. Rate of return b. New divisor c. Rate of return P1 95 40 90 91 425 450 650 % P2 Required: a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t= 1). Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. Calculate the new divisor for the price-weighted index in year 2. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. Calculate the rate of return for the second period (t=1 to t = 2). Note: Round your answer to 2 decimal places. % 92 425 450 95 40 45 1,300
Please show step by step work (not in excel): What is the call option premium given the following information? What would happen to the call price if the company initiated and paid a dividend before the expiration of the option? What would happen to the call premium if the expiration of the option expanded beyond the current 9 months? Stock price $36.00 Strike price $30.00 Volatility 16% Dividend Yield 0.00 Time 0.75 Riskfree Rate 2.70%
Data: S0 = 102; X = 115; 1 + r = 1.1. The two possibilities for ST are 146 and 84. Required: The range of S is 62 while that of P is 31 across the two states. What is the hedge ratio of the put? Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio? What is the present value of the portfolio? Given that the stock currently is selling at 102, calculate the put value.
You buy a share of stock, write a 1-year call option with X= $95, and buy a 1-year put option with X= $95. Your net outlay to establish the entire portfolio is $94. The stock pays no dividends. a. What is the payoff of your portfolio? Payoff b. What must be the risk-free interest rate? (Round your answer to 2 decimal places.) Risk-free rate
A stock is trading at $300 per share and a call option with strike $300 is priced $10 per share. If hedge ratio is 0.4, what's the call option elasticity? A. -20 B. -18 C. 15 D. 12
The current market price for common shares of Getgo Company is $15. Put options on these shares currently trade at 0.75 and come with a $10 strike price. If the stock’s market price falls to $8.45 what would be the dollar return earned on these put options? Your answer should look like this 1.2 that is not the right answer
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. The stock pays no dividends. a. What is the payoff of your portfolio? Payoff b. What must be the risk-free interest rate? (Round your answer to 2 decimal places.) Risk-free rate %
Consider two stocks: Stocks Current Price Possible Prices after one year Stock ABC $12.00 ABC + = $13.60 ABC – = $11.20 Stock XYZ $10.00 ABC + = $11.75 ABC – = $8.80 Assume a risk-free borrowing and lending rate is 5.20% and that neither stock pays dicidends, and a fractional shares can be bought and sold. *** Give the same stocks, ABC and XYZ. Suppose you find that there is an arbitrage opportunity involving a forward contract. Let ABC stock sell at $12.00 and that you borrow to buy 1000 shares of stock ABC at 5.20% interest by issuing a risk-free bond. You also entered into a forward contract to sell this share at $14.00 one period later and that you also see an opportunity to engage in the bondsmarket risk-free.Question: Show that, given a higher or a lower price of ABC and XYZ, is an opportunity to gain profit. Show your complete solution.
2. Why is writing a naked-cal option very risky? (find out first what a naked cal-is): 3. Graph the profits and losses associated with writing a-call option on a security with a strike price of $60-and a premium of $5. 4. Suppose that you own 100 -shares of the-company in which you just wrote the option in previous question: If you puehased these shares at $50 what will your net profit/loss position look like now over, say share prices from $40 to $80? Gonstruct a table-and graph the situation:
a) Draw the payoff patterns of i) a long call position ii) a long put position. b) A stock is currently trading at $155. The volatility of the stock price is 20% per annum and the risk-free rate is 8% per annum. What is the Black-Sholes price of a one-year call option with a strike price equal to $160? Assume that the stock will pay no dividends.
Assume that after one time period, the value of a stock of 80 would be either 120 Or 60. Suppose that, for any y, at a cost of Cy, one can purchase at a time-0 the option to buy y shares of the stock at time-1 at a price of 90 per share. For what values of C, no-arbitrage will be possible? Using the arbitrage theorem, find the value of C for the data given for your group in the above question Derive the first order partial derivative of the Black-Scholes option cost C with respect to r. (FOCUS ONLY OM THE LAST TWO )
5) A certain non-dividend paying stock is trading at $50 and its volatility is o = 25%. The risk-free interest rate is 1.25% per anuum with continuous compounding. a) Use a two-step tree (At = .5) to compute the value of 1-year European put option with strike price of $50? b) What would it be the price if the put were to be American?

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