Nikil The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it isgoing to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price ofthe stock is $100 per share, and the price of a 6 month call option at an exercise price of $100 is $5.60.Required:a. If the semiannual risk-free interest rate is 3%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of$100? (The stock pays no dividends.)b. What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would ithave to move in either direction for you to make a profit on your initial investment?Complete this question by entering your answers in the tabs below.Required ARequired BWhat would be a simple options strategy to exploit your conviction about the stock price's future movements? How far wouldit have to move in either direction for you to make a profit on your initial investment?Note: Do not round intermediate calculations. Round your answer to 2 decimal places.StrategyPrice change for profit< Required ARequired B >

b)The simple option strategy to exploit should be Long straddle. It will be best to have maximum…

Answered: The common stock of the P.U.T.T.…

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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The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it is going to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price of the stock is $125 per share, and the price of a 6 month call option at an exercise price of $125 is $6.93. Required: If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $125? (The stock pays no dividends.) What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would it have to move in either direction for you to make a profit on your initial investment?
The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it is going to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price of the stock is $130 per share, and the price of a 6 month call option at an exercise price of $130 is $10.85. Required: a. If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $130? (The stock pays no dividends.) b. What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would it have to move in either direction for you to make a profit on your initial investment? Complete this question by entering your answers in the tabs below. Required A Required B If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise…
The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it is going to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price of the stock is $85 per share, and the price of a 6 month call option at an exercise price of $85 is $8.00. Required: a. If the semiannual risk-free interest rate is 4%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $85? (The stock pays no dividends.) b. What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would it have to move in either direction for you to make a profit on your initial investment? Complete this question by entering your answers in the tabs below. Required A Required B If the semiannual risk-free interest rate is 4%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price…
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The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $100 per share, and the price of a 3-month call option at an exercise price of $100 is $10.a. If the risk-free interest rate is 10% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of $100? (The stock pays no dividends.)b. What would be a simple options strategy to exploit your conviction about the stock price’s future movements? How far would it have to move in either direction for you to make a profit on your initial investment?
You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $108 at year-end. XYZ currently sells for $108. Over the next year, the stock price will increase by 12% or decrease by 12%. The T-bill rate is 4%. Unfortunately, no put options are traded on XYZ Company. Required: a. Suppose the desired put option were traded. How much would it cost to purchase? b. What would have been the cost of the protective put portfolio? c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X=108? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put. Complete this question by entering your answers in the tabs below. Required A Required B Required C Suppose the desired put option were traded. How much would it cost to purchase? Note: Do not round intermediate calculations. Round your…
You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $102 at year-end. XYZ currently sells for $102. Over the next year, the stock price will increase by 7% or decrease by 7%. The T-bill rate is 4%. Unfortunately, no put options are traded on XYZ Company. Required: a. Suppose the desired put option were traded. How much would it cost to purchase? b. What would have been the cost of the protective put portfolio? c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X=102? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put. Complete this question by entering your answers in the tabs below. Required A Required B Required C What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with…
You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $110 at year-end. XYZ currently sells for $110. Over the next year, the stock price will either increase by 5% or decrease by 5%. The T-bill rate is 4%. Unfortunately, no put options are traded on XYZ Company. Required: a. How much would it cost to purchase if the desired put option were traded? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Cost to purchase b. What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Cost of the protective put portfolio
You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $240 at year-end. XYZ currently sells for $240. Over the next year, the stock price will either increase by 7% or decrease by 7%. The T-bill rate is 3%. Unfortunately, no put options are traded on XYZ Company. Required: a. How much would it cost to purchase if the desired put option were traded? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Radubhai
A.K. Scott’s stock is selling for $37 a share. A 3-month call on this stock with a strike price of $38 is priced at $2. Risk-free assets are currently returning 0.28 percent per month. a) What should be the price of a 3-month put option on this stock with a strike price of $38? b) Which of the two options is currently in the money and does that accord with your conclusions about their relative prices?
You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $105 at year-end. XYZ currently sells for $105. Over the next year, the stock price will increase by 9% or decrease by 9%. The T-bill rate is 7%. Unfortunately, no put options are traded on XYZ Company. Required: Suppose the desired put option were traded. How much would it cost to purchase? What would have been the cost of the protective put portfolio? What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X = 105? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put.

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