To draw: A graph showing the portfolio’s value as on expiration date. Introduction: Payoff graph: It is supposed to be a graphical representation of the potential outcomes of a strategy. The vertical axis depicts the profit/loss on options expiration day while the horizontal axis depicts the underlying asset price on the expiration day.

Question

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Answer 1

Question

Chapter 20, Problem 21PS

a

Summary Introduction

To draw: A graph showing the portfolio’s value as on expiration date.

Introduction:

Payoff graph: It is supposed to be a graphical representation of the potential outcomes of a strategy. The vertical axis depicts the profit/loss on options expiration day while the horizontal axis depicts the underlying asset price on the expiration day.

b

Summary Introduction

To draw: A graph showing the portfolio’s profit and compare the cost of the options.

Introduction:

Outlay cost: When a strategy is being executed, some costs are incurred. These costs can be termed as outlay costs. Outlay costs are incurred even when some assets are being purchased. As they are paid to the vendors, they can be easily recognized and measured in terms of money.

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Students have asked these similar questions

Consider the following portfolio. You write a put option with exercise price $90 and buy a put with the same expiration date with exercise price $95. a. Plot the value of the portfolio at the expiration date of the options. b. Now, plot the profit of the portfolio. Which option must cost more?

You write a put option with X = 100 and buy a put with X = 110. The puts are on the same stock and have the same expiration date.a. Draw the payoff graph for this strategy.b. Draw the profit graph for this strategy.c. If the underlying stock has positive beta, does this portfolio have positive or negative beta?

Draw the profit diagram (profit not payoff) of a portfolio consisting of a long position in two call options with exercise price ?, a short position in five call options with exercise price 2? and a long position in four call options with exercise price 3?. All options have the same maturity date and the same underlying stock. Clearly state any assumptions made. Is the cost of the portfolio positive?

Answer 2

Question

Chapter 20, Problem 21PS

a

Summary Introduction

To draw: A graph showing the portfolio’s value as on expiration date.

Introduction:

Payoff graph: It is supposed to be a graphical representation of the potential outcomes of a strategy. The vertical axis depicts the profit/loss on options expiration day while the horizontal axis depicts the underlying asset price on the expiration day.

b

Summary Introduction

To draw: A graph showing the portfolio’s profit and compare the cost of the options.

Introduction:

Outlay cost: When a strategy is being executed, some costs are incurred. These costs can be termed as outlay costs. Outlay costs are incurred even when some assets are being purchased. As they are paid to the vendors, they can be easily recognized and measured in terms of money.

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Answer 3

Question

Chapter 20, Problem 21PS

a

Summary Introduction

To draw: A graph showing the portfolio’s value as on expiration date.

Introduction:

Payoff graph: It is supposed to be a graphical representation of the potential outcomes of a strategy. The vertical axis depicts the profit/loss on options expiration day while the horizontal axis depicts the underlying asset price on the expiration day.

b

Summary Introduction

To draw: A graph showing the portfolio’s profit and compare the cost of the options.

Introduction:

Outlay cost: When a strategy is being executed, some costs are incurred. These costs can be termed as outlay costs. Outlay costs are incurred even when some assets are being purchased. As they are paid to the vendors, they can be easily recognized and measured in terms of money.

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Answer 4

Question

Chapter 20, Problem 21PS

a

Summary Introduction

To draw: A graph showing the portfolio’s value as on expiration date.

Introduction:

Payoff graph: It is supposed to be a graphical representation of the potential outcomes of a strategy. The vertical axis depicts the profit/loss on options expiration day while the horizontal axis depicts the underlying asset price on the expiration day.

b

Summary Introduction

To draw: A graph showing the portfolio’s profit and compare the cost of the options.

Introduction:

Outlay cost: When a strategy is being executed, some costs are incurred. These costs can be termed as outlay costs. Outlay costs are incurred even when some assets are being purchased. As they are paid to the vendors, they can be easily recognized and measured in terms of money.

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Answer 5

Chapter 20, Problem 21PS

a

Summary Introduction

To draw: A graph showing the portfolio’s value as on expiration date.

Introduction:

Payoff graph: It is supposed to be a graphical representation of the potential outcomes of a strategy. The vertical axis depicts the profit/loss on options expiration day while the horizontal axis depicts the underlying asset price on the expiration day.

b

Summary Introduction

To draw: A graph showing the portfolio’s profit and compare the cost of the options.

Introduction:

Outlay cost: When a strategy is being executed, some costs are incurred. These costs can be termed as outlay costs. Outlay costs are incurred even when some assets are being purchased. As they are paid to the vendors, they can be easily recognized and measured in terms of money.

Answer 6

Chapter 20, Problem 21PS

a

Summary Introduction

To draw: A graph showing the portfolio’s value as on expiration date.

Introduction:

Payoff graph: It is supposed to be a graphical representation of the potential outcomes of a strategy. The vertical axis depicts the profit/loss on options expiration day while the horizontal axis depicts the underlying asset price on the expiration day.

Answer 7

Chapter 20, Problem 21PS

a

Summary Introduction

To draw: A graph showing the portfolio’s value as on expiration date.

Introduction:

Payoff graph: It is supposed to be a graphical representation of the potential outcomes of a strategy. The vertical axis depicts the profit/loss on options expiration day while the horizontal axis depicts the underlying asset price on the expiration day.

Answer 8

b

Summary Introduction

To draw: A graph showing the portfolio’s profit and compare the cost of the options.

Introduction:

Outlay cost: When a strategy is being executed, some costs are incurred. These costs can be termed as outlay costs. Outlay costs are incurred even when some assets are being purchased. As they are paid to the vendors, they can be easily recognized and measured in terms of money.

Answer 9

b

Summary Introduction

To draw: A graph showing the portfolio’s profit and compare the cost of the options.

Introduction:

Outlay cost: When a strategy is being executed, some costs are incurred. These costs can be termed as outlay costs. Outlay costs are incurred even when some assets are being purchased. As they are paid to the vendors, they can be easily recognized and measured in terms of money.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 20 - Prob. 1PS Ch. 20 - Prob. 2PS Ch. 20 - Prob. 3PS Ch. 20 - Prob. 4PS Ch. 20 - Prob. 5PS Ch. 20 - Prob. 6PS Ch. 20 - Prob. 7PS Ch. 20 - Prob. 8PS Ch. 20 - Prob. 9PS Ch. 20 - Prob. 10PS

Solution Summary: The author explains that a payoff graph shows the portfolio's value as on expiration date.

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