Assume that the effective 6-month interest rate is 2\%, the S&R 6-month forward price is $1020, and use the premiums in the table below for the S&R options with 6 months to expiration. Strike Call Put 1000 93.809 74.201 1020 84.470 84.470 Consider the ratio spread position on the S&R index consisting in buying four 1000-strike call options and selling three 1020-strike call options. a) Find the payoff as a function of S, the spot price of the S&R index in 6 months. b) Draw payoff and profit diagrams for this ratio spread position. c) For which values of the spot price S at expiration will this position outperform a long 1000-strike straddle?

Assume that the effective 6-month interest rate is 2\%, the S&R 6-month forward price is $1020, and use the premiums in the table below for the S&R options with 6 months to expiration. Strike Call Put 1000 93.809 74.201 1020 84.470 84.470 Consider the ratio spread position on the S&R index consisting in buying four 1000-strike call options and selling three 1020-strike call options. a) Find the payoff as a function of S, the spot price of the S&R index in 6 months. b) Draw payoff and profit diagrams for this ratio spread position. c) For which values of the spot price S at expiration will this position outperform a long 1000-strike straddle?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 1P

See similar textbooks

Similar questions

Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of 21 and that expires in 1 year. (Hint: Use daily compounding.)
a) An investor has a long call option on the market index at a strike price of $930. At expiration the index price is $920. Explain the profit and loss.b) The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. Draw the payoff graph for the long put position at expiration. Include strike price, breakeven price, and max loss.
The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. Draw the payoff graph for the long put position at expiration. Include strike price, breakeven price, and max loss
The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8%(0.4% per month).The premium on the long put, with an exercise price of $930, is $8.00. Draw the payoff graph for the long put position at expiration.Include strike price,breakeven price, and max loss.
Answer the following question and give the specific process: What is the value of a derivative that pays off $100 in six months if an index is greater than 1,000 and zero otherwise? Assume that the current level of the index is 960, the risk-free rate is 8% per annum, the dividend yield on the index is 3% per annum, and the volatility of the index is 20%. (Hint: Use Binary options)
Assume you have taken a long position in an Amazon 1,850 Strike Price Call option. The $1,850 Strike Price Call option premium = $25. Amazon is currently trading at $1,865, the short-term interest rate = 2% and there are 2 months until expiry. Two months later, at expiration, Amazon had rallied to $1,875. What is the profit or loss on your Amazon 1,850 Strike Price Call option? (Please step by step solutions)
If the quotes for a T-bill with 90 days until maturity are 4.54 bid and 4.49 asked, at what price an investor could sell this bill? Assume the T-bill has a $10,000 face value. Round your answer to two decimal places.
A 9-month put option on SMC's stock has a strike price of P50 and sells in the market for P9.50. SMC's current stock price is P43. What is the option premium?
The par value of 10% debenture is $1,000 with maturity is 3 years. What would be the price by general floating formula if interest rate is 12%, Use excel.
One year ago, you purchased a put option on 100,000 euros with an expiration date of 1 year. Youreceived a premium on the put option of $.04 per unit. The exercise price was $1.22. Assume that 1 yearago, the spot rate of the euro was $1.20, the 1-year forward rate exhibited a discount of 2 percent, and the1-year futures price was the same as the 1-year forward rate. From 1 year ago to today, the eurodepreciated against the dollar by 4 percent. Today the put option will be exercised (if it is feasible for thebuyer to do so).a. Determine the total dollar amount of your profit or loss from your position in the put option. Explainthrough contingency graph.b. Now assume that instead of taking a position in the put option 1 year ago, you sold a futures contract on 100,000 euros with a settlement date of 1 year. Determine the total dollar amount of your profit or loss.Show in a graph.
The current value of BSE SENSEX is 10000 and the annualized dividend yield on the index is 5%. A six-month-futures contract on the BSE SENSEX is quoted at 10200. If the return on Treasury Bills available in the market for the same maturity is 5% and 25 % of the stocks included in the index will pay dividends during the next six months, you are required to a. Determine whether index futures is overpriced or under priced. b. Show risk-free arbitrage profits, if any, available to the investor irrespective of the value of the SENSEX on maturity with detail workings, assuming that the SENSEX on maturity can be i. 9900 orii. 10250 Solve fast please
A 6-month European put option on a stock with a strike price $63 is selling for $2, the current stock price is $65, and the stock will pay a dividend of $0.51 in 3 months. The 3-month risk-free rate is 8% per annum with quarterly compounding, and the 6-month risk-free rate is 10% per annum with semiannual compounding. What is the price of a 6-month European call option on the stock with the same strike price?