Compare the payoff patterns of two options

Assignment Help Finance Basics
Reference no: EM132618354

It is shown in the above table that the put option has a negative expected return of -16.67%. The negative return is due to the price ($120) investors would pay for this option when the expected payoff is $100. Remember the call option's expected return is 42.86%. This high expected return is due to the low price of $70.

Why do you think the put option has a negative expected return (-16.67%), while the call option has a very high positive expected return (42.86%)?

Compare the payoff patterns of these two options. When do they pay? Note that one pays when the economy is good, and the other pays when the economy is bad.

Reference no: EM132618354

Questions Cloud

What would be the entry on october : Williams Enterprises, Assuming Williams records deferred expenses using the alternative? treatment, what would be the entry on October? 1, 2019?
Explain the definition of a living will : Explain the definition of a living will and its key components. This section will provide an educational overview of the document for the patient.
Same amount for some foreseeable future : You are managing a company called Max Sdn Bhd, which uses various equipment to run its operations.
Compute the selling price of the unit in jocs : The company marks up it unit product costs by 25%. With the provided information, compute the selling price of the unit in JOCS
Compare the payoff patterns of two options : Compare the payoff patterns of these two options. When do they pay? Note that one pays when the economy is good
How do prepare a cash budget for december : How do Prepare a cash budget for December, January, and February. Do not round intermediate calculations. Round your answers to the nearest dollar
Calculate depreciation per year under straight line method : The machine had a useful life of 5 years and salvage value of $40,000. Calculate the depreciation per year under straight line method
Discuss the types of investors who may be appropriate : In our midterm assignment, we looked at four investments and discussed the types of investors who may or may not be appropriate for each selection.
Record the transactions in the books of prime entry : Mr J Ockey commenced trading as a wholesaler stationer on 1 May 2019 with a capital of 5,000.00. Record the transactions in the books of prime entry

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd