PRINCIPLES OF MACROECONOMICS
2nd Edition
ISBN: 9780357129128
Author: OpenStax
Publisher: CENGAGE L
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Textbook Question
Chapter 8, Problem 19RQ
When would you expect cyclical
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5. Some people find options expensive and use more complex structures to reduce the cost. For
example, consider buying a call with a strike of $55 and selling a call with a strike of $60.
a. What is the cost of establishing this combined position?
b. What is the payoff of the combined position if the market price goes to $60?
c. What is the payoff of the combined position if the market price goes to $100?
3. An investor has $1,000 to invest. They believe the price of the underlier will increase to $60
within one year.
a. How many shares of stock could they buy with the $1,000 at the current price of $50,
and how much would they make if the share price increased to $60?
b. How many calls with a strike of $55 could they buy for the same $1,000, and how
much would they make if the share price increased to $60?
c. How much would they make (or lose) from the stock and from the calls if the share
price declined to $40?
4. What is the premium on a call with a strike of $0.01? Why is the premium so close to the $50
share price?
1. We want to examine the comparative statics of the Black Scholes model. Complete the
following table using the Excel model from class or another of your choice. Provide the call
premium and the put premium for each scenario.
Underlier
Risk-free
Scenario
price
rate
Volatility
Time to
expiration
Strike
Call
premium
Put
premium
Baseline
$50
5%
25%
1 year
$55
Higher strike
$50
5%
25%
1 year
$60
Higher volatility
$50
5%
40%
1 year
$55
Higher risk free
$50
8%
25%
1 year
$55
More time
$50
5%
25%
2 years
$55
2. Look at the baseline scenario.
a. What is the probability that the call is exercised in the baseline scenario?
b. What is the probability that the put is exercised?
c. Explain why the probabilities sum to 1.
Chapter 8 Solutions
PRINCIPLES OF MACROECONOMICS
Ch. 8 - Suppose the adult population over the age of 16 is...Ch. 8 - Using the above data, what is the unemployment...Ch. 8 - Over the long term, has the U.S. unemployment rate...Ch. 8 - Whose unemployment rates are commonly higher in...Ch. 8 - Beginning in the 1970s and continuing for three...Ch. 8 - Is the increase in labor force participation rates...Ch. 8 - Many college students graduate from college before...Ch. 8 - What is the difference between being unemployed...Ch. 8 - How do you calculate the unemployment rate? How do...Ch. 8 - Are all adults who do not hold jobs counted as...
Ch. 8 - If you an? out of school but working part time,...Ch. 8 - What happens to the unemployment rate when...Ch. 8 - What happens to the labor force participation rate...Ch. 8 - What are some of the problems with using the...Ch. 8 - What criteria do the BLS use to count someone as...Ch. 8 - Assess whether the following would be counted as...Ch. 8 - Are U.S. unemployment rates typically higher,...Ch. 8 - Are U.S. unemployment rates distributed evenly...Ch. 8 - When would you expect cyclical unemployment to be...Ch. 8 - Why is there unemployment in a labor market with...Ch. 8 - Name and explain some of the reasons why wages are...Ch. 8 - What term describes the remaining level of...Ch. 8 - What forces create the natural rate of...Ch. 8 - Would you expect the natural rate of unemployment...Ch. 8 - Would you expect the natural rate of unemployment...Ch. 8 - What is frictional unemployment? Give examples of...Ch. 8 - What is structural unemployment? Give examples of...Ch. 8 - After several years of economic growth, would you...Ch. 8 - What type of unemployment (cyclical, frictional,...Ch. 8 - Using the definition of the unemployment rate, is...Ch. 8 - Is a decrease in the unemployment rate necessarily...Ch. 8 - If many workers become discouraged from looking...Ch. 8 - Would you expect hidden unemployment to be higher,...Ch. 8 - Is the higher unemployment rates for minority...Ch. 8 - While unemployment is highly negatively correlated...Ch. 8 - Why do you think that unemployment rates are lower...Ch. 8 - Do you think it is rational for workers to prefer...Ch. 8 - Under what condition would a decrease in...Ch. 8 - Under what condition would an increase in the...Ch. 8 - As the baby boom generation retires, the ratio of...Ch. 8 - Unemployment rates have been higher in many...Ch. 8 - Is it desirable to pursue a goal of zero...Ch. 8 - Is it desirable to eliminate natural unemployment?...Ch. 8 - The U.S. unemployment rate increased from 4.6 in...Ch. 8 - A country with a population of eight million...Ch. 8 - A government passes a family-friendly law that no...Ch. 8 - As the baby boomer generation retires, what should...
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