The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $95 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $95 is $6.00. Required: a. If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $95 if it is at the money? (The stock pays no dividends.) b. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement? What is the most money you can make on this position? How far can the stock price move in either direction before you lose money? c. How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now?

The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $95 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $95 is $6.00. Required: a. If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $95 if it is at the money? (The stock pays no dividends.) b. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement? What is the most money you can make on this position? How far can the stock price move in either direction before you lose money? c. How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now?

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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You Consider a stock with a price of $50 that is expected to increase by 6% or decrease by 8% each month over the next two months. Having a risk-free rate at 3% per year with continuous compounding, calculate the value of a two-month European put option with a strike price of $55. Repeat your calculations for a two-month American put option with a strike price of $55. Show clearly all your calculations and results with the use of the relevant equations and graphs. Discuss your investment decision in each case separately.
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There are call and put options on the shares in Nord AS with a redemption price of NOK 55 and one year to maturity. Today's share price is NOK 50. At the end of the year, the stock price will either be 30 kroner or 80 kroner. The risk-free interest rate of 3% per. year. a) What is the value of call options today? b) What is the value of the put options today if the put-buy parity holds? You have a portfolio of 2000 shares in Nord AS, but are starting to worry about that price. must fall. You therefore want to secure yourself by using options. c) Show how you can use call and put options to secure your position your. Explain.
A put option is currently selling for $5.8. It has a strike price of $65 and seven months to maturity. The current stock price is $71. The risk-free rate is 4.8 percent, and the stock will pay a $3.1 dividend in two months. What is the price of a call option with the same strike price? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Price of a call option
IBM stock currently sells for 84 dollars per share. Over 8 months the price will either go up by 7.5 percent or down by -3.0 percent. The risk-free rate of interest is 4.5 percent continuously compounded. A call option with strike price 83 and maturity of 8 months has a delta of 0.82766. What is the value of this call option? 0.62579 O2.6708 O4.0788 2.9324 O4.3788
Use the binomial tree analysis to value a 6-month American put option with a $65 strike price on Crookshanks Corporation. The shares are currently trading for $60. The annualized continuously compounded risk-free rate is 3%. The volatility of the stock is 57%. You will use the Cox Ross Rubenstein method for computing the binomial tree, and use a time step of 2 months.
Generic Stock Inc. (GS) is trading at $100. A call option with a strike price of $102, which expires in 6 months, costs $9.52 (assuming a risk - free rate of 5% and a volatility of 0.33). What is the Delta of this option
The price of a stock is currently $37. Over the next half year, the price is anticipated to rise to $42 or decline to $36. The upside has a 60% probability of occurring. The risk-free interest rate is 5% p.a.. What is the price of a six month call option with an exercise price of $38?
The stock price of Heavy Metal (HM) changes only once a month: either it goes up by 24% or it falls by 20.7%. Its price now is $48. The interest rate is 1.2% per month. What is the value of a one-month call option with an exercise price of $48? What is the option delta? The payoffs of the call option can be replicated by buying shares of stock and borrowing. What amount should be invested in stock and what amount must be borrowed? What is the value of a two-month call option with an exercise price of $49? What is the option delta of the two-month call over the first one-month period?
A two-year European call option is written on a stock whose current price is $20. The stock will pay a dividend of $1 three months from now and another $1 one and half years from now. The strike price is $18, and the riskfree interest rate is 5%. Then the tightest lower bound for the call option value is, 6. $1.8976 $1.535 $1.194 a. b. с. d. $1.7976. Six-month call options with strike prices of $25 and $30 cost $4 and $3 respectively. Then the maximum possible gain and loss from a bear spread 7. formed using the two calls are respectively $10 and infinity $10 and $10 $1 and $4 $4 and $1 $10 and $5 а. b. c. d. е. Twelve-month European put options with strike prices of $35, $30, and $25 cost $7, $3.5, and $2 respectively. Then the maximum possible gain and loss from a butterfly spread formed using the three puts are respectively 8. a. $4.5 and infinity b. $4.5 and $0.5 $0.5 and $4.5 $3 and $0.5 $10 and $4.5 c. d. е. 9. A three-month call with a strike price of $20 costs $1. A three-month…
A non-dividend-paying stock is currently selling for $50, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six-month forward contract on the stock. a. What is the forward price？ (sample answer: $25.45) b. What is the initial value of the forward contract? (sample answer: $25.45) c. Three months later, the price of the stock is $48 and the risk-free rate is still 8% per annum. What is the forward price now? (sample answer: $25.45) What is the value of the short position in the forward contract? (sample answer: $25.45 or -$25.45
The common stock of the CGI Inc. has been trading in a narrow range around $35 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $35 is $2, and a call with the same expiration date and exercise price sells for $3. Suppose you write a strap ( = write 2 calls and write 1 put with the same strike price) and the stock price winds up to be $37 at contract expiration. What was your net profit on the strap? A. $200 B. $300 C. $400 D. $500 E. $700

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