A three-month forward contract on a stock index is trading at $995. The current index level is $980. Assume a continuously compounded interest rate of 5%. Additionally, assume that the stock index does not pay any dividends. Which one of the following statements reflects a potential arbitrage strategy: (a) Long the forward contract, short the stock index, and lend at the risk-free rate (b) Short the stock index and lend at the risk-free rate while entering a forward contract agreement to purchase the asset in three months for $995. (c) Short the forward contract, borrow money at the risk-free rate, and long the asset. (d) None of the above The potential arbitrage profit in Question 7 is: (a) $0.000 (b) $2.512 (c) $2.673 (d) $2.723 The spot price of a stock is So = $120, and it is known that pays a quarterly dividend of D = $0.60, the first and second payments are due in three and six months, respectively. What is the no- arbitrage price for a forward contract on this stock maturing in six months from now? The risk-free rate is r = 5%. Choose the best answer. (a) $153.130 (b) $133.521 21.000

A three-month forward contract on a stock index is trading at $995. The current index level is $980. Assume a continuously compounded interest rate of 5%. Additionally, assume that the stock index does not pay any dividends. Which one of the following statements reflects a potential arbitrage strategy: (a) Long the forward contract, short the stock index, and lend at the risk-free rate (b) Short the stock index and lend at the risk-free rate while entering a forward contract agreement to purchase the asset in three months for $995. (c) Short the forward contract, borrow money at the risk-free rate, and long the asset. (d) None of the above The potential arbitrage profit in Question 7 is: (a) $0.000 (b) $2.512 (c) $2.673 (d) $2.723 The spot price of a stock is So = $120, and it is known that pays a quarterly dividend of D = $0.60, the first and second payments are due in three and six months, respectively. What is the no- arbitrage price for a forward contract on this stock maturing in six months from now? The risk-free rate is r = 5%. Choose the best answer. (a) $153.130 (b) $133.521 21.000

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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Carmax, Inc. common stock currently sells for $95.89 per share, and the standard deviation of returns is 44.58%. A call option with a strike price of $95.00 is currently trading on the market. The option expires in three months, and the risk - free rate of return is 4.4%. Carmax does not pay a dividend. Carmax's gamma (\Gamma) is: Group of answer choices 0.01829 0.00528 0.01723 0.01866
Google puts with 1 year to expiration and an exercise price of $680 trade for $27. Google calls with 1 year to expiration and an exercise price of $680 trade for $45. The interest rate over 1 year is 1%. Assume all options are European and Google pays no dividends. Using the put-parity condition, the stock price is equal to $691.27. a) In one month, the stock price remains the same as given above. Is the call option value lower, higher, or the same. Explain briefly.
The stock price of Atlantis Corp. is $43 today. The risk-free rate of return is 10%, and Atlantis Corp. pays no dividends. A call option on Atlantis Corp. stock with an exercise price of $40 and an expiration date 6 months from now is worth $5 today. A put option on Atlantis Corp. stock with an exercise price of $40 and an expiration date 6 months from now should be worth __________ today. A. $.05 B. $.14 C. $2 D. $3.95
1. (7 marks) A stock XYZ is quoted 1015. Two counterparties agree to enter into a forward contract maturing at T = 6 months. Here are the possible values of XYZ, at maturity. XYZ at T=6 months XYZ Forward Long Short 1000 1015 1020 1030 1080 (A) Find the possible values of the payoff for the buyer and for the seller of the forward and sketch a graph of the payoffs. (3.5 marks) (B) We know that spot price at expiration can be duplicated according to Forward + Zero Coupon bond = Spot Price at Maturity. Find the possible values of the zero coupon bond. What can you say about the risk associated with this bond? (3.5 marks)
Carmax, Inc. common stock currently sells for $106.45 per share, and the standard deviation of returns is 44.91%. A call option with a strike price of $95.00 is currently trading on the market. The option expires in three months, and the risk-free rate of return is 2.6%. Carmax does not pay a dividend. Carmax's gamma (Γ) is: Group of answer choices 0.00391 0.01353 0.01526 0.01541
Sunshine Cruise does not pay a dividend and is currently trading at $36 per share with a volatility of 45% .The current risk free rate of interest is 4% .The price of a put option on Sunshine with a strike price of $35 that expires in 91 days is closes to:
12. The following are prices of call options traded on Pineapple inc., which pays no dividends Call Options Exercise price = $200 Exercise price = $205 one month $4.50 $3.00 three month $6.25 $5.00 six month $9.00 $7.50 The stock is trading at $202 and the annualized riskless rate is 2%. The standard deviation in ln(stock prices) (Based on historical data) is 15%. What is the implied standard deviation in the six month call with a strike price of $200? Please show solution on excel or with formula. Thanks
The risk-free rate is 2.5%. And the AAP Corporation currently trades at $200. Ignore transaction costs, and assume that the stock pays no dividends. What is the spread between a put and a corresponding call for AAP’s options expiring in 2 years with a strike price of $220?
A share is currently priced at £50. After one time period the share price will either increase to £70 or decrease to £40. Assume the interest rate is 4% per time period. Find the no-arbitrage price of a European derivative on the share which has payoff £90 if the share price goes up and £110 if the share price goes down. State your answer to the nearest pence. Do not enter the pound sign.
Taagart has a volatility of 25% and a current share price of $40. Taagart does not pay dividends. The risk- free interest rate is 4%. Assume a one-year at-the-money call option. An increase in the volatility of the option from 25% to 40% affects the price of this call option so that it: A) increases by $0.70 B) increases by $2,30 C) decrease by $1,70 D) increases by $2,80
Today is January 1. The forward price for contracts maturing on April 1 is $104.4 and on October 1 is $111.6. On April 1, the price of a zero-coupon bond maturing on October 1 is $0.975. Assuming that the underlying interest rate is a continuously compounded interest rate and will not change, the amount of profit that you can make on October 1 by trading one contract each of the near and distant maturity forwards and other securities is: [round to two decimal places]
Suppose you can borrow and lend at the annual interest rate of 6% per annum. The IBM stock is trading at $200. It is not going to pay any dividend in one year. Use this information to answer the following three questions. 20. What is the fair forward price of a forward contract which calls for the delivery of 1 share of IBM stock at the end of one year? A. $216 B. $210 C. $214 D. $212 21. If the actual forward price Fa is $214, your arbitrage strategy is to A. buy one share of IBM, borrow $200, and sell the forward B. buy one share of IBM, borrow $212, and buy the forward C. short one share of IBM, lend $200, and buy the forward D. short one share of IBM, borrow $200, and sell the forward 22. At the end of one year, suppose IBM stock price is St, then the cash flow in the spot (stock) market is _, the cash flow in the forward contract is and the arbitrage profit is A. ST, 214- ST, 2 B. -St, ST-214, 2 C. -ST, 214-ST, 2 D. ST, ST-214, 2

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