The following graph illustrates the contingency graph for purchasers of euro call options, with a premium of $0.04 and an exercise price of $1.42.**Graph Description:**- **Axes:** - The x-axis represents the "Future Spot Rate" in dollars per euro, ranging from $1.38 to $1.56. - The y-axis represents the "Net Profit per Unit" in dollars per unit, ranging from -$0.05 to $0.05.- **Line Plot:** - The graph contains a line that starts below the x-axis at a future spot rate of $1.38 with a net loss of $0.04 per unit. - The line intersects the x-axis at the break-even point of $1.46 future spot rate. - Beyond this point, as the future spot rate increases, the net profit per unit increases.- **Data Points:** - At a future spot rate of $1.42, the graph indicates a net loss due to the cost of the option premium. - At a future spot rate of $1.48, the net profit is visible past the break-even point.**Annotations:**- According to the graph, if the spot rate turns out to be $1.48 and the option is exercised, the buyer will gain per unit.- The break-even price on the graph is marked at $1.46.

A call option buyer is expecting markets to go up and is betting on the increase in spot rate vis a vis the strike price. Value of a call option = (Max of (Spot - Strike, 0)) - Premium paid Break even point for a call option = Strike price + PremiumExercise price or strike price = $1.42 Premium for the call option = $0.04 Break even point = $1.42 + $0.04 = $1.46 Gain can be calculated using the call option formula: (Max of (Spot - Strike, 0)) - Premium paid = (Max of ($1.48 - $1.42, 0)) - $0.04 = $0.02 If the spot rate turns out to be $ 1.48, and the call option is exercised, the buyer will gain $0.02 per unit. Break-even price is $1.46

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NET PROFIT PER -0.01 -0.02 -0.03 -0.04 O O -0.05 + 1.38 1.40 1.42 1.44 1.46 1.48 1.50 1.52 1.54 1.56 FUTURE SPOT RATE (Dollars per euro) According to the graph, if the spot rate turns out to be $1.48, and the option is exercised, the buyer will According to the graph, break-even price is $1.46 lose gain per unit.

NET PROFIT PER -0.01 -0.02 -0.03 -0.04 O O -0.05 + 1.38 1.40 1.42 1.44 1.46 1.48 1.50 1.52 1.54 1.56 FUTURE SPOT RATE (Dollars per euro) According to the graph, if the spot rate turns out to be $1.48, and the option is exercised, the buyer will According to the graph, break-even price is $1.46 lose gain per unit.

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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i sold a call option with an exercise price of $1.20/euro. the premium was $0.02/euro. what is my profit or loss if the exchange rate is $1.205/euro?
Study Tools ons cess Tips cess Tips pack The following graph shows the contingency graph for sellers of euro call options, with a premium of $0.02 and an exercise price of $1.48. NET PROFIT PERUNT (Delars per un 0.03 0.02 O 0.01 -001 600 -0.01 14 145 180 182 154 155 156 180 182 FUTURE SPOT RATE (Dollars per euro) ? According to the graph, if the spot rate turns out to be $1.50, and the option is exercised, the seller will According to the graph, break-even price is per unit.
Calculate Duolingo’s underpricing if the offer price equals $102 and the closing price on the first trading day equals $134.26.
Give Answer with calculation and also provide correct and incorrect option explanation
?Q.19 Consider a European call option with the following parameters: Assuming a risk-free annual rate of 8%, what is the probability that the option will be exercised in a risk- neutral world? (If required, use the table at the beginning of the document for statistical calculations.) Strike price USD 48 Expiration 6 months Underlying's Price USD 50 Annual volatility 25% A B C 0.70 0.5761 0.6443 D 0.3668
Using put-call parity, if the price of an At-the-Money Call option maturing in 1 day is $3.14, what is the price of an of an At-the-Money Put option maturing in 1 day (give an approximation)? A. $0.95 B. $2.86 C. $3.14 D.$3.26
Given the following information, predict the European call option's new price after the risk free rate changes. Initial call option price = $3 Initial risk free rate = 9.9% Rho = 9 New risk free rate = 9.5% (required precision 0.01 +/- 0.01) Greeks Reference Guide: Delta = ∂π/∂S Theta = ∂π/∂t Gamma = (∂2π)/(∂S2) Vega = ∂π/∂σ Rho = ∂π/∂r Recall that rho is defined as the partial derivative of the option's price with respect to the risk free rate. (i.e. rho = ∂π / ∂r).
If put options on USD with a strike price of AUD6.9/USD have a premium of AUD4.3, what is the break- even price (BEP) for a buyer or a seller of these options? Assume that there are no brokerage fees. Question Answer a. The buyer's BEP is AUD 2.6000 and the seller's BEP is AUD 11.2000 b. The buyer's BEP is AUD 2.6000 and the seller's BEP is AUD 2.6000 c. The buyer's BEP is AUD 11.2000 and the seller's BEP is AUD 11.2000 d. The buyer's BEP is AUD 11.2000 and the seller's BEP is AUD 2.6000 e. The buyer's BEP is AUD 6.9000 and the seller's BEP is AUD 11.2000
What is the appropriate risk-free rate on May 11, 2022 for an option that expires on Oct 20, 2022 if the T-bill with closest maturity is quoted as 3.65/3.44? a. What is the un-annualized discount rate? Round your answer to two decimals. b. What is the T-bill price? Round your answer to two decimals b . What is the approximate risk-free rate? % Round your answer to two decimals
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A trader purchased an at the money 1 year OTC put option on the DAX index for a cost of Eur 10000. What is the traders minimum potential credit Exposure to the counter part over the term of the trade

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