Don't used Ai solution QUESTION 18Suppose a 6-month maturity call option with exercise price $80 currently sells for $10. Consider a portfolio with $5000 invested in three at-the-money callcontracts and $5000 in 6-month T-bills to earn 2% return. What's the portfolio return when the stock price becomes $105?a. 12.010Ob.-0.235Oc. 0.380O d. 0.760

Given:Call option details:Maturity: 6 monthsExercise price: $80Current price: $10$5000 invested in…

Answered: QUESTION 18 Suppose a 6-month maturity…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 4MC

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FINANCE1A 10th Question
Question 5: A call option on a stock that expires in a year has a strike price of $99. The current stock price is $100 and the one-year risk free interest rate is 10%. The price of this call is $6. a) Is arbitrage possible? What is the arbitrage position? b) do you het this minimum? Find the minimum arbitrage profit for this strategy. When
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Question 16 A call option with an exercise price of $40 and four months to expiration sells for $6.78. If the risk-free rate is 1.80% per year (compounded continuously) and the market price of a stock is $45, calculate the price of a put option on this stock $5.24 $5.00 $1.54 $2.50
Suppose ABC's stock price is currently $25. In the next six months it will either fall to $15 or rise to $40. What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5% (periodic rate). [Use the riskneutral valuation method]A. $20.00 B. $8.57 C. $9.52 D. $13.10
QUESTION FIVE (5) a) The daily gain from a portfolio is normally distribute I with mean GHS20,000 cad standard deviation GHS 0.6 million. Using Besarket risk requirements, calculate the value at risk for determining mician capital b) Suppose that the spot price of a non-dividend-paying stock is $50, the 3-month forward price is $55, the 6-month USS interest rate is 10% per annum. Is there an arbitrage opportunity?
Aa.2 A stock price is currently $42. The risk-‐free interest rate is APR 4% with continuous compounding. What is the value of a six-‐month American put option with a strike price of $46 using two-‐step binomial option pricing model? Stock pricemove up by 5% or down by 7% for each three month. Less than $3.0. Larger than $3.0 but less than $3.7. Larger than $3.7 but less than $4.3. Larger than $4.3 but less than $5.0.
Problem 1: Hedging market risk using S&P500 index futures Assume you have a portfolio worth currently $5,000,000. Let portfolio beta be ß, = 2. Assume you want to hedge market risk until 3 months from now.' Current value of S&P500 index futures 3 month from now is 3,900.00. You are using mini futures i.e. $50 per point. a) If you want to completely remove market risk without using futures. What would you do? b) If you use S&P500 mini futures, how many futures you would buy to completely hedge your exposure to market risk. c) What would be the value of your new (i.e. hedged) portfolio when S&P500 goes up by 2% 3 months from now? d) What would be the value of your new portfolio when S&P500 declines by 3% 3 months from now. e) What should you do in a) if you want to change the ß of your portfolio approximately to ß = 1? f) What should you do in b) if you want to change the ß of your portfolio approximately to B = 1?
Question 1 Help = 1. Find the expected profit for a holder of a European call option with K = 94 to be exercised in six months if the stock price at maturity is ST (90, 96, 98) with probabilities p = (1, 1, 1), given that the option is bought for Co= 10 financed by a loan at the interest rate of 10% (per annum).
23.10 What are the prices of a call option and a put option with the following characteristics? Stock price = $46  Exercise price = $50  Risk-free rate = 6% per year, compounded continuously Maturity = 3 months Standard deviation = 54% per year

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