The point of purchasing a European option is to limit the risk of a decrease in the per- share price of the stock. Suppose you purchased 200 shares of the stock at $28 per share and 75 six-month European put options with an exercise price of $26. Each put option costs $1. A B Parameters 4 Costs of Put Option 5 Exercise Price 6 Horizon (months) 7 Price per share 8 Price- End of Horizon $1.00 $26.00 6 $28.00 $23.00 9 10 Model 11 Number of Shares Purchased 200 12 Number of Puts Purcased 75 13 14 Vaue of the Option 15 16 Portfolio Value with Options 17 Cost of the Portfolio with Options 18 Profit with Options 19 20 Portfolio Value without Options 21 Cost of the Portfolio without Options 22 Profit without Options 3. Build a (spreadsheet) model to show the value of the portfolio with options and without options. (20%) (Hint: Follow the above to create the parameters and the formulas for Model) 4. Use data tables to shows the value of the portfolio with options and without options for a share price in six months between $15 and $35 per share in increments of $1.00. (25%) 5. Discuss the portfolio profit with and without the European put options. Which one (with or without) is more profitable? (10%) Your submission of report should be a MS Excel file showing formulas.
The point of purchasing a European option is to limit the risk of a decrease in the per- share price of the stock. Suppose you purchased 200 shares of the stock at $28 per share and 75 six-month European put options with an exercise price of $26. Each put option costs $1. A B Parameters 4 Costs of Put Option 5 Exercise Price 6 Horizon (months) 7 Price per share 8 Price- End of Horizon $1.00 $26.00 6 $28.00 $23.00 9 10 Model 11 Number of Shares Purchased 200 12 Number of Puts Purcased 75 13 14 Vaue of the Option 15 16 Portfolio Value with Options 17 Cost of the Portfolio with Options 18 Profit with Options 19 20 Portfolio Value without Options 21 Cost of the Portfolio without Options 22 Profit without Options 3. Build a (spreadsheet) model to show the value of the portfolio with options and without options. (20%) (Hint: Follow the above to create the parameters and the formulas for Model) 4. Use data tables to shows the value of the portfolio with options and without options for a share price in six months between $15 and $35 per share in increments of $1.00. (25%) 5. Discuss the portfolio profit with and without the European put options. Which one (with or without) is more profitable? (10%) Your submission of report should be a MS Excel file showing formulas.
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
Related questions
Question
am. 129.
Transcribed Image Text:The point of purchasing a European option is to limit the risk of a decrease in the per-
share price of the stock. Suppose you purchased 200 shares of the stock at $28 per
share and 75 six-month European put options with an exercise price of $26. Each put
option costs $1.
A
B
Parameters
4 Costs of Put Option
5
Exercise Price
6 Horizon (months)
7
Price per share
8
Price- End of Horizon
$1.00
$26.00
6
$28.00
$23.00
9
10
Model
11 Number of Shares Purchased
200
12 Number of Puts Purcased
75
13
14 Vaue of the Option
15
16 Portfolio Value with Options
17 Cost of the Portfolio with Options
18 Profit with Options
19
20 Portfolio Value without Options
21 Cost of the Portfolio without Options
22 Profit without Options
3. Build a (spreadsheet) model to show the value of the portfolio with options and
without options. (20%) (Hint: Follow the above to create the parameters and the
formulas for Model)
4. Use data tables to shows the value of the portfolio with options and without
options for a share price in six months between $15 and $35 per share in
increments of $1.00. (25%)
5. Discuss the portfolio profit with and without the European put options. Which one
(with or without) is more profitable? (10%)
Your submission of report should be a MS Excel file showing formulas.
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