Reference no: EM13766356
Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $168, and the price of the call option is $8.93. You also write a January expiration IBM put option with exercise price $163, the price of the put option is $10.85.
Instructions: for parts a, b, and c, enter your answer as a decimal rounded to the nearest cent.
a. What will be the profit/loss on this position if IBM is selling at $162 on the option expiration date? $
b. What will be the profit/loss on this position if IBM is selling at $174 on the option expiration date? $
c. At what two stock prices will you just break even on your investment (i.e., zero net profit)?
For the put, this requires that: $????
For the call this requires that: $????
d. What kind of bet is this investor making; that is, what must this investor believe about IBM’s stock price in order to justify the position?
betting that the IBM stock price will go up.
betting that the IBM stock price will go down.
betting that the IBM stock price will have low volatility.
betting that the IBM stock price will have high volatility.
|
Depreciation expense and interest expense
: Hamble, Inc., has sales of $19,070, costs of $10,460, depreciation expense of $2,530, and interest expense of $1,600. If the tax rate is 35 percent, what is the operating cash flow, or OCF?
|
|
Because of tax effects-increase in the risk-free rate
: Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of debt than on the cost of common stock as measured by the CAPM. If a company’s beta increases, this will increase the cost of equity used to ..
|
|
What is maximum percentage loss you can incur option buyer
: What is the maximum percentage loss you can incur as an option buyer?
|
|
Automate basic system administrator processes
: This course introduces basic programming concepts, logic, and scripting language tools used to automate basic system administrator processes. Critical thinking, logic, and troubleshooting are emphasized.
|
|
Expiration call option on IBM with exercise price
: What will be the profit/loss on this position if IBM is selling at $162 on the option expiration date? What will be the profit/loss on this position if IBM is selling at $174 on the option expiration date? What kind of bet is this investor making; th..
|
|
Risk-free interest rate from now until options maturity date
: You buy a share of stock, write a one-year call option with a strike price X = $21, and buy a one-year put option with a strike price X = $21. Your net initial cost to establish the entire portfolio is $19.60. What must be the risk-free interest rate..
|
|
What is the maximum profit and loss for this position
: An investor purchases a stock for $57 and a put option for $.85 with a strike price of $52. The investor also sells a call option for $.85 with a strike price of $61. What is the maximum profit and loss for this position?
|
|
Publicly known problems with their internal control
: Research and analyze a company that has had publicly known problems with their internal control.
|
|
Firms estimated intrinsic value per share of common stock
: You must estimate the intrinsic value of Noe Technologies stock. The end-of-year free cash flow (FCF1) is expected to be $24.00 million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company’s WACC is 10.0%, it has $125..
|