An investor subscribes to a call option with a strike price of 20USD. In May, the shares cost 18USD, and the option price is 2USD. Describe the investor's cash flow, if the option is retained until September and the stock price is 25USD on that date.

An investor subscribes to a call option with a strike price of 20USD. In May, the shares cost 18USD, and the option price is 2USD. Describe the investor's cash flow, if the option is retained until September and the stock price is 25USD on that date.

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

See similar textbooks

Related questions

Q: You shorted a call option on Intuit stock with a strike price of $38. When you sold (wrote) the…

A: Shorting a call option involves selling (writing) a call option contract, which gives the buyer the…

Q: he stock of Bedrock Solutions is currently trading at $15.00 per share. The 1-month call option with…

A: Option price is made up of time value and Intrinsic value. i.e Option value = Time value + Intrinsic…

Q: A one-year call option with a strike price of 80, a three-month expiration date, and a price of…

A: The put-call parity concept applies to European options, which help in explaining the relationship…

Q: An investor enters a threeyear swap contracts by paying fixed price and receive spot price of…

A: Swaps are financial agreements between two parties to exchange future cash flows based on…

Q: A forward contract with 8 months to maturity is written on an underlying share. The market price of…

A: Forward Contract: A forward contract by it's name only suggests a contract pursued for future course…

Q: Suppose that, on 5 November 2020, you opened a short position in a two-year futures contract on the…

Q: The current price of a stock is $16. In 6 months, the price will be either $20 or $12. The annual…

A: The call option is a derivative instrument that allows the holder to buy the asset at a…

Q: The current price of Natasha Corporation stock is $6.27. In each of the next two years, this stock…

Q: You have shorted a put option on Ford stock with a strike price of $15. When you sold (wrote) the…

A: Payoff to a Short Put option The writer or seller of the put option is required to buy the stock at…

Q: The price of Stock Y, which is currently $80, can go to $120, $90, or $60 in 6 months’ time.…

A: Assume that P1, P2, and P3 are the probabilities that the price of the stock increases upto $120,…

Q: A stock has a spot price of $200. The stock pays a $5 dividend in 6 months. The continuous…

A: Spot price = sp = $200 Dividend = d = $5 dividend Time = td = 6 / 12 = 0.5 years Stock time = ts = 2…

Q: Suppose that, on 5 November 2020, you opened a short position in a two-year futures contract on the…

A: concept. Future price = spot price * ert where , r = interest rate t= time period.

Q: The price of Chive Corporation stock will be either $60 or $75 at the end of the year. Call options…

A: In an option's contract, the holder is granted the right to purchase shares of an asset at a…

Q: The futures price for an asset is $60. Expiration is in 3 months, and the risk free rate is 4%. If…

A: Arbitrage is the practice of simultaneously buying and selling an asset in different markets to take…

Q: and the strike price is $80. Currently, the price of XYZ stock is $65. The 3-month in compounded) is…

A: Call options are derivative products that gives the opportunity buy stock on expiration but there is…

Q: The stock of Bedrock Solutions is currently trading at $20.00 per share. The 1-month put option with…

A: Time value of put is the price at which due to current situation of market.

Q: An investor has agreed to LEND $10 million for 3-months in the future at a rate of (SOFR + 1%). What…

A: Data given: Investor agreed to LEND $10 million for 3-months in the future at a rate of (SOFR + 1%)…

Q: A. Determine the swap's annualized fixed rate, given the current interest rate term structure as…

A: A. Calculate the discounting factor (D1) at initiation by the formula. The n is the number of days…

Q: A call option is currently selling for $3. It has a strike price of $65 and six months to maturity.…

A: Put-call parity is an options pricing that defines the relationship between the prices of European…

Q: You have been given that a 6-month 100 Call option on XYZ stock is trading at $4.25. A put with the…

A: Given: Call premium (C)= 4.25 Put Premium (P) = 1.25 Strike price (X)=100 Initial price (S)=102

Q: It is 16th July. A company has a portfolio of stocks worth $100 million. The beta of the portiolio…

A: The objective of the question is to determine the position the company should take in the futures…

Q: If the initial speculative margin of a futures contract is $2,000, the maintenance margin is $1,800…

A: Several trading accounts these days provide the facility of margin trading. It essentially means…

Q: A 6-month European put option on a stock with a strike price $63 is selling for $2, the current…

A: A financial concept known as "Put-Call Parity" states that there should be no chance of arbitrage…

Q: A one year call option contract of Office Pro sells for $2,200. In one year, the stock price will be…

A: A call option is a contract where the buyer has the right but not the obligation of purchasing the…

Q: On November 21, you bought one December maturity S&P 500 index futures contract at the futures price…

A: The answer is as fallows

Q: You write a put option contract at a premium of $1.55/option: you are short in the put. The options…

A: Solution:Selling a put option means obligation to buy the underlying asset at strike price on…

Q: It is 16th July. A company has a portfolio of stocks worth $100 million. The beta of the portiolio…

A: The objective of the question is to determine the position the company should take in the futures…

Q: A put option and call option with an exercise price of $50 expire in four months and sell for $5.99…

A: Options give the opportunity to sell or buy stock on expiration but there is no obligation to do…

Q: A. What is the price of a call option with a strike of $80 and a maturity of 2.5 years? The…

A: Note: I am providing the solution to the first three parts of the question only. Please repost the…

Q: The current price of a stock is $50, and the annual risk-free rate is 5.5%. A call option with a…

A: Value of call option = C0 = $13.78Current price of the stock = S0 = $50Strike price = K = $43Risk…

Q: What position shares is necessary to hedge a short position in one call option? short sell 1…

A: An option is an agreement between two parties granting one the opportunity to buy or sell a security…

Q: Magenta Corporation has a put option which it purchased 30 days ago. The option originally has a…

A: Term of Option is 120 days Risk free rate is 5% Volatility is 45% Total stocks in underlying are…

Q: stock with an annual standard deviation of 18 percent currently sells for $68. The risk-free rate is…

A: Put option gives opportunity to sell stock on expiration but there is no obligations to do that. Put…

Q: oday is January 3. Your friend David has just bought a futures contract on a stock index, and the…

A: Honor Code: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must…

Q: A single stock futures contract on a non dividend-paying stock with current price $120 has a…

A: The futures price is the predetermined price at which parties agree to buy or sell the underlying…

Q: Suppose that, on 5 November 2020, you opened a short position in a two-year futures contract on the…

A: Forward contract: It is a type of contract which is entered for hedging the position in the exchange…

Q: Find the cash flow from the mark-to-market proceeds on the contract. (Do not round intermediate…

A: A financial agreement for the purchase or sale of an asset at a fixed future time and price is known…

Q: value of delta of a 3 month European put option on the stock

A: European put option refers to the option that allows the holder to sell the under security at the…

Q: Today is January 3. Your friend David has just bought a futures contract on a stock index, and the…

Q: Consider an American put option with time to expiry 15 months, and a strike of 74. The current price…

A: Binomial tree : A binomial tree is a representation of the intrinsic values of an option taken at…

Q: Suppose that a stock has current price of $15. It is expected that in 4 months, the value of the…

A: The call option refers to the derivative instrument that gives the holder of the option the choice…

Q: You are going to write a 50-strike 1 year call option priced as $16 and enter 1 year long forward…

A: You have taken 2 positions. You short 1 call option at strike price $50 by earning $16 as premiumYou…

Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Option contract

VIEW

Step 2: Answer and explanation

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

You observe the price of a European put option that expires in nine months and has a strike price of$45 is $3. The underlying stock price is $49.50. The term structure is flat, with all risk-free interestrates being 8%.a. What is the price of a European call option that expires in nine months and has a strike priceof $45? b. You observe next that the price of the call option (in part (a)) in the market is $9.59. Statewhy an arbitrage opportunity exists and explain how you would take advantage of thisopportunity. (Hint: answer should include an outline general strategy, net cost ofstrategy at initiation and net profit at expiration using the numbers in the question)
Suppose that you, on 1st of January 2023, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50 and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2023). a) What are the forward price and the initial value of the forward contract? Five years later, 1st of January 2028, the price of the stock is $60 and the risk-free interest is still 5%. b) On 1st of January 2028, what are the forward price and the value of the forward contract that you entered into on 1st of January 2023? Explain. c) Suppose that you on 1st of January 2028 enter a short position in a forward contract on the same underlying stock and with expiration date in 5 years. What is the value of your total position? (I.e. what is the total value of the long position in the forward contract in a) and your short position). What is the payoff of your total position at maturity? d) On 1st of January 2028, what is the value…
A stock currently sells for $34.4. A 6-month call option with a strike price of $41 has a premium of $5.5. Let the continuously compounded risk-free rate be 3%. What is the price of the associated 6-month put option with the same strike (to the nearest penny)? Price = $ b) A stock currently sells for $33.35. A 6-month call option with a strike price of $30.1 has a premium of $2.3,and a 6-month put with the same strike has a premium of $0.9. Let the continuously compounded risk-free rate be 4%. What is the present value of dividends payable over the next 6 months (to the nearest penny)?
a company’s current stock price is $60 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $50. These options will expire at the end of 1 year, at which time the company’s stock will be selling at one of two prices, $45 or $70. The risk-free rate is 7%. what is the call option at the option’s expiration in 1 year ?
You sell a call option on Tesla stock with an exercise price of $150.00. The option expires after one month period as soon as the option premium is $12.00. what is the profit on this option is the stock price $180 at expiration?
The current price of Natasha Corporation stock is $6.00. In each of the next two years, this stock price can either go up by $2.50 or go down by $2.00. The stock pays no dividends. The one-year risk-free interest rate is 3.0% and will remain constant. Using the Binomial Model, calculate the price of a two-year call option on Natasha stock with a strike price of $7.00. The price of the two-year call option is $ (Round to the nearest cent.)
An investor subscribes to a call option with a strike price of 20USD. In May, the shares cost 18USD, and the option price is 2USD. Describe the investor's cash flow, if the option is retained until September and the stock price is 25USD on that date.
There are call and put options on the shares in Nord AS with a redemption price of NOK 55 and one year to maturity. Today's share price is NOK 50. At the end of the year, the stock price will either be 30 kroner or 80 kroner. The risk-free interest rate of 3% per. year. a) What is the value of call options today? b) What is the value of the put options today if the put-buy parity holds? You have a portfolio of 2000 shares in Nord AS, but are starting to worry about that price. must fall. You therefore want to secure yourself by using options. c) Show how you can use call and put options to secure your position your. Explain.
1) In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $130 or fall to $70 after one month. The gross one month risk - free rate is 1.02 %. Using risk neutral pricing, what is the price of a 100- strike one-month call option? Round your calculaton for q and 1 - q to four (4) decimal places. a. $14.90 b. $14.71 c. $15.05 d. $15.69 2) In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $120 or fall to $80 after one month. The gross one month risk - free rate is 1.03%. Using risk neutral pricing, what is the price of a 100-strike one-month put option? Round your calculaton for q and 1 - q to three (3) decimal places a. $8.00 b. $8.25 c. $8.50 d. $8.75
round to nearest dollar
It is 16th July. A company has a portfolio of stocks worth $100 million. The beta of the portiolio is 1.2. The company would like to use the December futures contract on a stock index to change the beta of the portfolio to 0.5 during the period 16th July to 16th November. The index is currently 1,000, and each contract is $250 times the index. What position should the company take?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS