A call option with expiration date

Assignment Help Financial Management

Reference no: EM131492568

Consider a stock S whose initial price is S 0 = 55. A call option with expiration date T and strike price 50 has initial price 7.50 and a put option with expiration date T and strike price 60 has initial price 4. You create a portfolio Π by selling short 100 shares of S and using the proceeds to by 500 of the call options described above, and a number of the put options described above in order to make the initial value Π0 of your portfolio equal to zero.

(i) How many of the put options do you buy?

(ii) For what values of ST is the value of the portfolio equal to zero at time T ?

For what values of S T is the value of the portfolio positive at time T ?

For what values of ST is the value of the portfolio negative at time T ?

Reference no: EM131492568

Questions Cloud

The average nominal rate be on one-year bond : what would the average nominal rate be on one-year bond, two-year bond, three year bond?

Payback period and accounting rate of return for equipment : Compute the (1) payback period and (2) accounting rate of return for this equipment.

What is present value of your winnings : You have just won the lottery and will receive $570,000 in one year. What is the present value of your winnings?

About the perpetuity costs : A perpetuity costs X now and makes monthly payments at the end of the month starting two months from now.

A call option with expiration date : A call option with expiration date T and strike price 50 has initial price 7.50 and a put option with expiration date T and strike price 60 has initial price 4.

Money mortgage for real estate is substantially : When an interest rate in a purchase-money mortgage for real estate is substantially below the current market rate of interest,

Show the cash flows : A firm needs to replace its the garage doors at its loading dock area. Show the cash flows for this problem.

Consider put-call parity for european call and put options : Consider the put-call parity for European Call and Put options on the same same stock S, same expiry date T, same strike price E

What is the average tax rate : The Dyrdek Co. had $300,000 in 2014 taxable income. Use the tax rates from Table 2.3. What is the average tax rate?

User Account

All Pages