For the following problem assume the effective 6-month interest rate is 2 %, the S&T 6-month forward price is $ 1020, and use the premiums listed below for S&T options with 6 month to expiration. Strike Cll 950 120.405 51.777 1000 93.809 74.201 Put 1020 84.47 84.47 1050 71.802 101.214 1107 51.873 137.167 Suppose you buy the S&T index for $ 1000 and buy a 950-strike put, and sell a 1107-strike call. Determine the profit for this position at the following S&T index spot prices at expiriry. When price is $ 925, the profit is $ When price is $ 950, the profit is $ When price is $ 975, the profit is $ When price is $ 1000, the profit is $ ? When price is $ 1025, the profit is $ When price is $ 1050, the profit is $ When price is $ 1075, the profit is $ When price is $ 1100, the profit is $ When price is $ 1125, the profit is $ ?
For the following problem assume the effective 6-month interest rate is 2 %, the S&T 6-month forward price is $ 1020, and use the premiums listed below for S&T options with 6 month to expiration. Strike Cll 950 120.405 51.777 1000 93.809 74.201 Put 1020 84.47 84.47 1050 71.802 101.214 1107 51.873 137.167 Suppose you buy the S&T index for $ 1000 and buy a 950-strike put, and sell a 1107-strike call. Determine the profit for this position at the following S&T index spot prices at expiriry. When price is $ 925, the profit is $ When price is $ 950, the profit is $ When price is $ 975, the profit is $ When price is $ 1000, the profit is $ ? When price is $ 1025, the profit is $ When price is $ 1050, the profit is $ When price is $ 1075, the profit is $ When price is $ 1100, the profit is $ When price is $ 1125, the profit is $ ?
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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Transcribed Image Text:For the following problem, assume the effective 6-month interest rate is 2%, the S&T 6-month forward price is $1020, and use the premiums listed below for S&T options with 6 months to expiration.
| Strike | Call | Put |
|--------|--------|-------|
| 950 | 120.405| 51.777|
| 1000 | 93.809 | 74.201|
| 1020 | 84.47 | 84.47 |
| 1050 | 71.802 | 101.214|
| 1107 | 51.873 | 137.167|
Suppose you buy the S&T index for $1000 and buy a 950-strike put, and sell a 1107-strike call. Determine the profit for this position at the following S&T index spot prices at expiry.
- When price is $925, the profit is $___
- When price is $950, the profit is $___
- When price is $975, the profit is $___
- When price is $1000, the profit is $___
- When price is $1025, the profit is $___
- When price is $1050, the profit is $___
- When price is $1075, the profit is $___
- When price is $1100, the profit is $___
- When price is $1125, the profit is $___
### Explanation of the Problem Setup
In this exercise, you are creating an options trading strategy using both calls and puts on the S&T index. You are:
1. **Buying the Index**: You purchase the index at a price of $1000.
2. **Buying a 950-Strike Put**: This provides insurance if the index price falls below $950. The cost for this put is $51.777.
3. **Selling a 1107-Strike Call**: This caps your potential profit if the index goes above $1107 while earning you a premium of $51.873.
The table provides premiums for various strikes of puts and calls, helping you calculate potential profits or losses based on the spot prices listed.
Use these details to fill in your profit at each specified spot price by considering:
- The initial cost of entering the position.
- The potential payoff of the options at different expiration spot
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