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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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 %
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