Combined profit per share profile at expiration

Assignment Help Financial Management

Reference no: EM131559355

You just bought 500 shares of Ford for $11 a share. To make sure that the value of your shares,is protected against price decline you simultaneously enter an option position in Ford options. Assume that the excercise price is $11 a share for both put and call; call price is $0.75 a share and put price is $0.65 a share. Assume that options expire in 3 months and are exercised on expiration date.

(a) What is your decision Circle one position. Note that you can enter only one position. Also you must indicate the number of contracts

Positions Number of contracts

-Buy Call

-Sell Call

-Buy Put

-Sell Put

Given your choice in part a answer parts b, c and d about the combined position in option and stock.

(b) What is your total profit per share if the stock price increases to $15 a share at expiration?

(c.) What is your total profit per share if the stock price declines to $0 at expiration?

(d) Create one diagram below that shows the per share profit profiles for the option and stock separately and also their combined profit per share profile at expiration. (label each axis, profit profile and all breakeven points)

Reference no: EM131559355

Questions Cloud

Semiannual bond overestimates the actual bond price : Show that the effective duration of a 5 year 6% semiannual bond overestimates the actual bond price change over 1, 2, and 5% changes on interest rates.

Compare and contrast tracking-targeted and letter stocks : Compare and contrast tracking, targeted, and letter stocks. Provide specific examples to illustrate their similarities and differences.

What are unlevered cash flows in years : Sawtooth Machinery is considering a 4-year project to manufacture a new line of chainsaws. What are the unlevered cash flows in years 0 through year 4?

Assume you can borrow or lend money at risk-free rate : Assume you can borrow or lend money at risk-free rate.

Combined profit per share profile at expiration : Create one diagram below that shows per share profit profiles for option and stock separately and also their combined profit per share profile at expiration.

Debt against bankruptcy costs incurred due to leverage : Explain with a diagram how firms trade-off the tax shield provided by debt against bankruptcy costs incurred due to leverage.

Company weighted average cost of capital : What is the company’s weighted average cost of capital?

What is the minimum amount to pay for premium : LIFE INSURANCE PREMIUMS A man wishes to purchase a 5-yr term-life insurance policy that will pay the beneficiary $20,000 in the event that the man's death.

How much money can he afford to borrow : The bank will lend her money to buy a car at 6% APR compounded monthly (0.5% per month). How much money can he afford to borrow?

User Account

All Pages