Assume that you hold a call option on stock A. The call has a strike price of 50 and expires in 6 months. Stock A pays no dividends. 1. What is the payoff from the call if stock A is trading at 57 in 6 months? 2. What is the payoff from the call if stock A is trading at 45 in 6 months? 3. Draw a payoff diagram that shows the payoff of the call as a function of the underlying stock price.

Assume that you hold a call option on stock A. The call has a strike price of 50 and expires in 6 months. Stock A pays no dividends. 1. What is the payoff from the call if stock A is trading at 57 in 6 months? 2. What is the payoff from the call if stock A is trading at 45 in 6 months? 3. Draw a payoff diagram that shows the payoff of the call as a function of the underlying stock price.

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

Similar questions

Assume that an investor holds the following portfolio: short stock bought at a price 90$, long one 3- month maturity call option on the same stock with an exercise price of $88. a) Show the payoff structure of this portfolio at option expiration both numerically and graphically. b) Calculate the profit/loss on this position if stocks are selling at $80 on the option maturity date. Calculate the profit/loss on the position if the stocks are selling at $110. Call option premium is $5, while put option premium is $3. Ignore the transaction costs. c) Explain what kind of "bet" the investor is making. What must the investor in such a portfolio believe about the stock price to justify this position?
Given the following information, price of a stock: strike price of a six-month call: market price of the call: strike price of a six-month put: market price of the put: The maximum the seller of the put can lose is $ $102 $100 $6 $100 $3
A stock is currently priced at $42 and will move up by a factor of 1.24 or down by a factor of .93 each period over each of the next two periods. The risk-free rate of interest is 3 percent. What is the value of a put option with a strike price of $51? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Suppose that a stock price is currently 56 dollars, and it is known that five months from now, the price will be either 22 percent higher or 22 percent lower. Find the value of a European put option on the stock that expires five months from now, and has a strike price of 55 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 6 percent.
A collar is established by buying a share of stock for $54, buying a 6-month put option with exercise price $47, and writing a 6-month call option with exercise price $61. On the basis of the volatility of the stock, you calculate that for a strike price of $47 and expiration of 6 months, N(d1) = 0.7298, whereas for the exercise price of $61, N(d1) = 0.6374. Required: What will be the gain or loss on the collar if the stock price increases by $1? What happens to the delta of the portfolio if the stock price becomes very large? What happens to the delta of the portfolio if the stock price becomes very small?
Consider a call option on one share of BP with a strike price of $70 and exercise time 1 quarter (3 months). Suppose the current stock price for BP is S(0) = $65 per share. Suppose further that A(0) = $100, A(1) = $102 and two possible prices for S(1) are S $74 with probability 0.5, S(1) = $66 with probability 0.5. Evaluate the expected returns E(Ks) and E(Kc) for the stock and the option.
A stock is currently priced at $63 and has an annual standard deviation of 43 percent. The dividend yield of the stock is 5.2 percent, and the risk - free rate is 5.2 percent. What is the value of a call option on the stock with a strike price of $60 and 48 days to expiration? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Call option $
Which of the following call options on XYZ stock is most valuable? 1. Strike price = $ 40, 3 months to expiration 2. Strike price = $ 40, 3 months to expiration 3. Strike price = $ 50, 6 months to expiration 4. Strike price = $ 50, 6 months to expiration
You buy a share of stock, write a 1-year call option with X= $85, and buy a 1-year put option with X- $85. Your net outlay to establish the entire portfolio is $83.3. The stock pays no dividends. a. What is the payoff of your portfolio? Payoff b. What must be the risk-free interest rate? (Round your answer to 2 decimal places.) Risk-free rate %
A stock is currently priced at $61 and has an annual standard deviation of 41 percent. The dividend yield of the stock is 2.8 percent, and the risk-free rate is 4.8 percent. What is the value of a call option on the stock with a strike price of $58 and 52 days to expiration? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Call option $
Assume that a $60 strike call has a 2.0% continuous dividend, r = 5%, the stock price is $61.00, and the volatility is 20%. What is the theta of the option as the expiration time declines from 60 to 50 days? Answer to 2 decimal places. Correct Answers Between -0.2 and -0.18
A stock is currently trading for $25 per share and an investor is interested in the following two options with a one year expiration term. Options Call Put Strike Price $28 $24 Quoted Price $2 $4 a) Calculate the intrinsic values of the call and put. b) Draw the profit diagram for a short position in the put option described above. Label the diagram well. Show all the critical points on the diagram. For example, the intercepts on axes, maximum profit or maximum loss. What price movements are required for the investor to have a positive profit? c) Draw the profit diagram for a long position in the call option. And label the diagram well. d) Suppose one month later, the stock price moves up to $30 per share, how will the prices of the call and put change? Why? Briefly explain. e) Suppose an investor purchased 10 contracts of the 28 calls and sold 10 contracts of the 24 puts. If the stock price turns out to be $30 per share in one month, what is the total profit for this investor?

SEE MORE QUESTIONS

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