Explain how hedge has provided protection-transaction costs

Assignment Help Financial Management

Reference no: EM13835141

Alan just bought 100 shares of Global, Inc. (GLO) at $45 per share and as protection he also bought a three-month put with a $45 strike price at a cost of $400. One of two scenarios is expected to occur in the next three months: (a) GLO stock declines to $33; and (b) GLO stock rises to $61. Calculate the profit or loss under each scenario and explain how the hedge has provided protection for Alan's position in GLO. Ignore transaction costs.

Reference no: EM13835141

Questions Cloud

What value of the exponent gives an adequate representation : Use the compromise programming method to obtain the Pareto frontier. What value of the exponent gives an adequate representation of the Pareto frontier?

Develop a potential thesis statement : develop a potential thesis statement

A local finance company quotes : A local finance company quotes a 15 percent interest rate on one-year loans. So, if you borrow $20,000, the interest for the year will be $3,000. Because you must repay a total of $23,000 in one year, the finance company requires you to pay $23,000/1..

What is freds total initial margin : Fred has just sold short 3 contracts of May wheat on the CBT. These are 5,000 bushel contracts. The initial deposit is $1,500 per contract with a maintenance margin of $1,200. What is Fred's total initial margin? How much of an increase in the price ..

Explain how hedge has provided protection-transaction costs : Alan just bought 100 shares of Global, Inc. (GLO) at $45 per share and as protection he also bought a three-month put with a $45 strike price at a cost of $400. One of two scenarios is expected to occur in the next three months: (a) GLO stock decline..

Discuss your ability to generate the pareto frontier : Discuss your ability to generate the Pareto frontier in terms of the exponents you used in the compromise programming formulation. Which exponents worked satisfactorily for the complete Pareto frontier generation?

Strategic plan with cost estimates and time line : Develop a five-year strategic plan with cost estimates and a time line. It should be 5-7 double-spaced, typed (12 point) pages plus exhibits. Describe the situation facing Mensa at the time of the case. This should include the major issues facing the..

Describe the difference between a simile and a metaphor : Describe the difference between a simile and a metaphor.

Calculate the price of the bond : What is the major determinant of bond prices? The ABC bond carries a 6.5% semi-annual coupon rate and matures in 23 years. If the market yield on these bonds is 8%, calculate the price of the bond. If interest rates (yields) do not change in the mark..

User Account

All Pages