EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 21, Problem 9PS
Summary Introduction
(a)
To show:
That the range of S is 50 and P is 30. Also, we have to find the hedge ratio of the put option.
Summary Introduction
(b)
To calculate:
The payoff of three stock and two put options portfolio.
Summary Introduction
(c)
To calculate:
The
Summary Introduction
(d)
To show:
The value of put option is $10.91 when the stock is currently selling at $100.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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?
Data: So=102; X = 115; 1 + r=1.1. The two possibilities for ST are 146 and 84.
Required:
a. The range of S is 62 while that of P is 31 across the two states. What is the hedge ratio of the put?
b. Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio?
c. What is the present value of the portfolio?
d. Given that the stock currently is selling at 102, calculate the put value.
× Answer is not complete.
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
Required D
What is the present value of the portfolio?
Note: Round your answer to 2 decimal places.
Present value
$
146.00 x
Data: S0 = 102; X = 115; 1 + r = 1.1. The two possibilities for ST are 146 and 84.
Required:
The range of S is 62 while that of P is 31 across the two states. What is the hedge ratio of the put?
Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio?
What is the present value of the portfolio?
Given that the stock currently is selling at 102, calculate the put value.
Chapter 21 Solutions
EBK INVESTMENTS
Ch. 21 - Prob. 1PSCh. 21 - Prob. 2PSCh. 21 - Prob. 3PSCh. 21 - Prob. 4PSCh. 21 - Prob. 5PSCh. 21 - Prob. 6PSCh. 21 - Prob. 7PSCh. 21 - Prob. 8PSCh. 21 - Prob. 9PSCh. 21 - Prob. 10PS
Ch. 21 - Prob. 11PSCh. 21 - Prob. 12PSCh. 21 - Prob. 13PSCh. 21 - Prob. 14PSCh. 21 - Prob. 15PSCh. 21 - Prob. 16PSCh. 21 - Prob. 17PSCh. 21 - Prob. 18PSCh. 21 - Prob. 19PSCh. 21 - Prob. 20PSCh. 21 - Prob. 21PSCh. 21 - Prob. 22PSCh. 21 - Prob. 23PSCh. 21 - Prob. 24PSCh. 21 - Prob. 25PSCh. 21 - Prob. 26PSCh. 21 - Prob. 27PSCh. 21 - Prob. 28PSCh. 21 - Prob. 29PSCh. 21 - Prob. 30PSCh. 21 - Prob. 31PSCh. 21 - Prob. 32PSCh. 21 - Prob. 33PSCh. 21 - Prob. 34PSCh. 21 - Prob. 35PSCh. 21 - Prob. 36PSCh. 21 - Prob. 37PSCh. 21 - Prob. 38PSCh. 21 - Prob. 39PSCh. 21 - Prob. 40PSCh. 21 - Prob. 41PSCh. 21 - Prob. 42PSCh. 21 - Prob. 43PSCh. 21 - Prob. 44PSCh. 21 - Prob. 45PSCh. 21 - Prob. 46PSCh. 21 - Prob. 47PSCh. 21 - Prob. 48PSCh. 21 - Prob. 49PSCh. 21 - Prob. 50PSCh. 21 - Prob. 51PSCh. 21 - Prob. 52PSCh. 21 - Prob. 53PSCh. 21 - Prob. 1CPCh. 21 - Prob. 2CPCh. 21 - Prob. 3CPCh. 21 - Prob. 4CPCh. 21 - Prob. 5CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- We will derive a two-state call option value in this problem. Data: S0 = $190; X = $200; 1 + r = 1.10. The two possibilities for ST are $220 and $120. The portfolio consists of 1 share of stock and 5 calls short. Required: a. The range of S is $100 while that of C is $20 across the two states. What is the hedge ratio of the call? (Round your answer to 2 decimal places.) b. Calculate the value of a call option on the stock with an exercise price of $200. (Do not use continuous compounding to calculate the present value of X in this example, because the interest rate is quoted as an effective per-period rate.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)arrow_forwardFind a portfolio with payoff at time T equal to if 0 ≤ S(T) ≤ 10, if 10 ≤S(T) ≤ 30, if 30 ≤S(T). VT = 2ST + 30, -3ST+80, ST-40, Here, ST denotes the price of the underlying asset at time T. You can hold cash, the asset, calls, and puts.arrow_forwardConsider the following portfolio. You write a put option with exercise price 90 and buy a put option on the same stock with the same expiration date with exercise price 95.a. Plot the value of the portfolio at the expiration date of the options.b. On the same graph, plot the profit of the portfolio. Which option must cost more?arrow_forward
- Suppose Stock A has B = 1 and an expected return of 11%. Stock B has a B = 1.5. The risk- free rate is 5%. Also consider that the covariance between B and the market is 0.135. Assume the CAPM is true. Answer the following questions: a) Calculate the expected return on share B. b) Find the equation of the Capital Market Line (CML). c) Build a portfolio Q with B = 0 using actions A and B. Indicate weights (interpret your result) and expected return of portfolio Q.arrow_forwardDraw 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?arrow_forwardConstruct a hedge portfolio and by using the binomial option pricing model and find the values of Pu and Pd; and P. Explain the answer and describe the hedge portfolio. A stock currently priced at $100. One period later it can go up to $125, an increase of 25 percent, or down to $80, a decrease of 20 percent. Assume a put option is available with an exercise price of $100. Consider the example in a two-period world. The risk-free rate is 7 percent. The inputs are summarized as follows S = 100 d = 0.80 u = 1.25 X= 100 r = 0.07arrow_forward
- Consider a portfolio consisting of 6 stocks and 10 put options on the stocks. The current stock price is S0 = 100 and the stike price of the options is X = 100. The stock pricecan take on only two values at maturity T given by Su = 120 and Sd = 90. The risk-free rate is given by 5%. (1) How many put options with strike price X = 110 are necessary in the portfolio to have a certain payoff at maturity?(2) Find the value of a put option P0 with strike price X = 100.(3) Find the value of a call option C0 with X = 100 by using the Put-Call-Parity. Verify that your answer by calculating the price C0 directly.arrow_forwardYou have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. a. What are the betas of Stocks X and Y? b. What are the required rates of return on Stocks X and Y? c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?arrow_forwardYou are evaluating a put option based on the following information: P = Ke-H•N(-d,) – S-N(-d,) Stock price, So Exercise price, k = RM 11 = RM 10 = 0.10 Maturity, T= 90 days = 0.25 Standard deviation, o = 0.5 Interest rate, r Calculate the fair value of the put based on Black-Scholes pricing model. Cumulative normal distribution table is provided at the back.arrow_forward
- Suppose that the risk-free rate r, = 0.03, the expected market return uM = 0.11, and the market volatility oM = 0.16. Stock A has beta = 1.2 and diversifiable risk o̟ = 0.08. Stock B has beta = 0.8 and 0, = 0.03. Stock C has beta = 1.5 and o̟ = 0.1. Consider a portfolio P which is 45% in Stock A, 25% in Stock B, and 30% in Stock C. (a) Find the value of beta for this portfolio. (b) Assuming CAPM, find the portfolio's expected return µp. (c) Find the standard deviation of the portfolio's systematic (or mar- ket) risk. (d) Find the standard deviation o, of the diversifiable risk of P. (You may assume that the diversifiable risks of A,B, and C are uncorrelated.)arrow_forwardSuppose you came up with the following calculations; Assume your utlity function is represented by U E(Rp) 1/2A\sigma_p^2 where your risk aversion parameter A = 25. What is the weight that you must invest in Stock C in order to create your Optimal Portfolio? Present result in decimals, for example, 0.78, not 78 %. Round to 4 decimals. Your Answer: Answerarrow_forwardSuppose you are given stocks A and B. Stock A has an expected return of 11% and a standard deviation of 4%. Stock B has an expected return of 21% and a standard deviation of 10%. The correlation between them is -1. Suppose it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Round answer to 3 decimal places.)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Portfolio return, variance, standard deviation; Author: MyFinanceTeacher;https://www.youtube.com/watch?v=RWT0kx36vZE;License: Standard YouTube License, CC-BY