A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, compute the profit or loss from the long put position ONLY in 6 months if the market index is $810.

A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, compute the profit or loss from the long put position ONLY in 6 months if the market index is $810.

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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Question

A strategy consists of buying a market index product at $830 and longing a put on
the index with a strike of $830. If the put premium is $18.00 and interest rates are
0.5% per month, compute the profit or loss from the long put position ONLY in 6
months if the market index is $810.
$1.36 loss
$1.46 gain
$2.80 loss
$3.45 gain

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