A stock is trading at $69. You believe there is a 60% chance the price of the stock will increase by 20% overthe next 3 months. You believe there is a 10% chance the stock will drop by 5%, and you think there is only a30% chance of a major drop in price of 60%. At-the-money 3-month puts are available at a cost of $840 percontract. What is the expected dollar profit for a writer of a naked put at the end of 3 months?Multiple Choice$3,300-$436.50$495$0

Information Provided: Stock price = $69 Cost of contract = $840

A stock is trading at $69. You believe there is a 60% chance the price of the stock will increase by 20% over the next 3 months. You believe there is a 10% chance the stock will drop by 5%, and you think there is only 30% chance of a major drop in price of 60%. At-the-money 3-month puts are available at a cost of $840 per contract. What is the expected dollar profit for a writer of a naked put at the end of 3 months?

A stock is trading at $69. You believe there is a 60% chance the price of the stock will increase by 20% over the next 3 months. You believe there is a 10% chance the stock will drop by 5%, and you think there is only 30% chance of a major drop in price of 60%. At-the-money 3-month puts are available at a cost of $840 per contract. What is the expected dollar profit for a writer of a naked put at the end of 3 months?

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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Suppose you had just gone long (purchased) on lot of Syarikat XYZ stock at a price of RM 15.00 each, for a total investment of RM 15,000. You believe this stock has long term potential but wish to protect yourself from any short-term downside movement in price. Suppose 3-month, at-the-money put options on Syarikat XYZ stocks are being quoted at RM 0.15 or 15 sen each or RM 150 per lot (RM 0.15 x 1,000). a. What would be the appropriate options strategy to hedge the long stock position? b. Show (in a table) the payoff to the combined position for a given range of stocks prices at options maturity in 3-months. c. Draw the payoff profile of combined positions.
Suppose you believe that BVC Inc.’s stock price is going to decline from its current level of P92.50 sometime during the next 5 months. For P350.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of P94.00 per share. If you bought a 100-share contract for P350.25 and BVCl Inc.’s stock price actually dropped to P75.00, what would be your net profit (after transactions costs but before taxes)? Format: 1,111.11
Suppose the stock price is currently $75. For the next six months there is 7.5% probability that the stock will appreciate 8% with 4% annualized drift. The risk-free rate is 1.53% per year with continuous compounding. The dividend yield is 1 p.a.%. Value the following option using binomial tress and 12-time steps. a.) What is the value of a six-month European put option with a strike price of $86. b.) What is the value of a six-month American put option with a strike price of $70. c.) What is the value of a six-month European call option with a strike price of $86. d.) What is the value of a six-month European put option with a strike price of $70. e.) Estimate how high the minimum strike price must be for it to be optimal to exercise the put option immediately.
The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $105 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $105 is $12.86. a. If the risk-free interest rate is 5% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $105 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price of a 3-month call option
Suppose you have $28,000 to invest. You're considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You notice that a put option with a $40 strike is available with a premium of $2.80. Calculate your percentage return on the put option for the six-month holding period if the stock price declines to $36 per share. (Do not round intermediate calculations. Enter your 6-month return as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Percentage return %
You Consider a stock with a price of $50 that is expected to increase by 6% or decrease by 8% each month over the next two months. Having a risk-free rate at 3% per year with continuous compounding, calculate the value of a two-month European put option with a strike price of $55. Repeat your calculations for a two-month American put option with a strike price of $55. Show clearly all your calculations and results with the use of the relevant equations and graphs. Discuss your investment decision in each case separately.
The price of a stock is currently $200 per share. It'll pay a dividend of $0.85 every 3 months (the next dividend will occur 3 months from now). 3-month and 5-month risk free interest rates are 0.2% and 0.25%, respectively. All rates are annual rates with continuous compounding. What should be the delivery price of a 5-month forward contract so that the contract is of zero cost? Keep 2 digits in your final answer. Do not include $ sign.
Jim Company bought a machine for $54,260 with an estimated life of 5 years. The residual value of the machine is $7,100. This machine is expected to produce 131,000 units. In year 1, it produced 24,500 units, and in year 2, 43,500 units. Assuming the units-of-production method, calculate the first 2 years’ depreciation. Year 1: Year 2:
Use the binomial tree analysis to value a 6-month American put option with a $65 strike price on Crookshanks Corporation. The shares are currently trading for $60. The annualized continuously compounded risk-free rate is 3%. The volatility of the stock is 57%. You will use the Cox Ross Rubenstein method for computing the binomial tree, and use a time step of 2 months.
The stock price of Heavy Metal (HM) changes only once a month: either it goes up by 24% or it falls by 20.7%. Its price now is $48. The interest rate is 1.2% per month. What is the value of a one-month call option with an exercise price of $48? What is the option delta? The payoffs of the call option can be replicated by buying shares of stock and borrowing. What amount should be invested in stock and what amount must be borrowed? What is the value of a two-month call option with an exercise price of $49? What is the option delta of the two-month call over the first one-month period?
The stock price of Google is $589. You have $10,000 saved in a savings account. The monthly interest rate is 0.2%. You think the stock price will go down soon, and want to trade 20 shares. What should you do? Enter 20 for buying 20 shares (on margin if necessary), or -20 for selling or short-selling 20 shares. If the initial margin is 50%, what is the minimum additional dollar amount that you have to deposit in your brokerage account? What is your initial percentage margin (entered as a decimal number) once you've completed the deposit calculated in part 2? Two months later, the stock price is $609. Google paid a dividend of $7 per share just before the two months were over. What is your percentage margin (entered as a decimal number)?

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