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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Below is the price and other information for a European call option.Based on this information, find the premium with the Black-Scholes model. S = $ 98K = $ 100t = 3 monthsr = 5%S 2 = 25% (0.25)S = 0.5
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.
Using put-call parity formula, derive expressions for the lower bounds for European call and put options. What is a lower bound for the price of (i) a three-month call option on a non-dividend-paying stock when the stock price is R860, the strike price is R760, and the risk-free interest rate is 10% per annum? (ii) a three-month European put option on a non-dividend-paying stock when the stock price is R500, the strike price is R610, and the discrete risk-free interest rate is 9% per annum?
Assume that the price of a forward contract is 127.87. The European options on the forward contract has an exercise price $150, expiring in 60 days. 3.75% is the continuously compounded risk-free rate, and volatility is 0.33. A. Using the Black model, calculate the price of a call option on a forward contract. B. Calculate the underlying asset's price. Using the Black-Scholes-Merton model, determine the price of a call option on the underlying asset. Should this pricing be any different from the one calculated in letter A? Explain your answer. C. Using the Black model, calculate the price of a put option on a forward contract. D. Using the Black-Scholes-Merton model, compute the price of a put option on the underlying asset. Should this pricing be any different from the one calculated in letter C? Explain your answer.
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).
What is the implied volatility of a European call option with the following parameters? c = $3 s0 = $40 k = 41 r = 10% T = 0.5 years (Enter 11.51% as 0.1151. Required precision +/- 0.0002)
How to solve this problem? plz solve it step by step with formulas, thank u! (which one is the risk-free rate? 1% or 2%) Options on Indexes and Currencies Example Suppose that the current exchange rate of AUD to CAD is 1.2 AUD/CAD and o = 0.4463. Find the price of American put option to sell CAD for AUD at K = $1.1 AUD/CAD before or at half a year from now. Assume that the risk-free rates in Canada and Australia are 2% and 1%, respectively. Find the price of the American call option today by using the two period binomial model.

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