Question 1. Assume that Mr. Binda is a speculator who buys a 90-day British pound option with a strike price of $27.02. Assume one option contract specifies 10,000 units and the current spot price as of date is $26.87. Mr. Binda pays premium of $0.05 per unit for the call option and no other charge (such as brokerage fee). Just on expiration date, the spot rate of a pound reaches $27.18. Required a) Determine the profit or loss if the option is exercised b) Determine the value of the call option if the option is exercised
Question 1. Assume that Mr. Binda is a speculator who buys a 90-day British pound option with a strike price of $27.02. Assume one option contract specifies 10,000 units and the current spot price as of date is $26.87. Mr. Binda pays premium of $0.05 per unit for the call option and no other charge (such as brokerage fee). Just on expiration date, the spot rate of a pound reaches $27.18. Required a) Determine the profit or loss if the option is exercised b) Determine the value of the call option if the option is exercised
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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1.
Assume that Mr. Binda is a speculator who
buys a 90-day British
pound option with a strike price of $27.02.
Assume one option contract specifies 10,000
units and the current spot price as of date is
$26.87. Mr. Binda pays premium of $0.05 per
unit for the call option and no other charge
(such as brokerage fee). Just on expiration
date, the spot rate of a pound reaches $27.18.
Required
a) Determine the profit or loss if the option is
exercised
b) Determine the value of the call option if the
option is exercised
2. Suppose that Mr, Binda buys a three-month
5,000 contract to buy "commodity-X' at a
futures price of 1,0000 from Mr. John. The
contract requires an initial margin of $70 per
contract and maintenance margin of $40 per
contract.
Required
a) Compute the initial margin that both Mr.
Binda must deposit to the clearing house.
b) Compute the maintenance margin that
both Mr. Binda must deposit to the clearing
house.
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