Find the break-even stock price

Reference no: EM132114295

Financial Derivatives and Risk Management Homework -

1. This is September, and you have $4,000 to invest for three months. The stock price is currently $40. A December call option with a $40 strike price is currently selling for $4. You have two strategies:

a) Buy 100 shares

b) Buy 10 call options (each call option has 100 shares)

(1) Please evaluate the two strategies and fill out the blanks in the following table.

Stock Price at Maturity (in December)	Net Profit at Maturity
Stock Price at Maturity (in December)	Strategy a): Buy 100 shares	Strategy b): Buy 10 calls
25
30
35
40
45
50
55

(2) Find the break-even stock price (i.e., the stock price at which the two strategies yield the same payoff).

(3) Draw a diagram to illustrate.

Reference no: EM132114295

Questions Cloud

Analyzing the central issues in public administration : Prepare a paper critically analyzing the central issues in public administration (i.e., any level of government or nonprofit organization).

Explain how contingency theory-differentiation : Explain how contingency theory, differentiation, or integration occurred in the change. Explain two strengths and one limitation that may occur

Show up later in the systems development life cycle : Show up later in the systems development life cycle can be traced back to inadequate work doing requirements determination.

Evaluate a leader and identify what makes him effective : This can be a leader you are personally aware of, or someone you don't know, but have observed to be an effective leader.

Find the break-even stock price : FIN368 Financial Derivatives and Risk Management Homework - This is September, and you have $4,000 to invest for three months. Find the break-even stock price

Globalism has been credited with benefiting : Globalism has been credited with benefiting which of the following LEAST?

Explanation of turbulence in the context of organizations : An explanation of turbulence in the context of organizations and how it increases the need for organic networking.

How is enhanced auditor reporting being embraced : HI6026 Audit, Assurance and Compliance - How is Enhanced Auditor Reporting being embraced in Australia - Write the Executive Summary after the report

What steps should mr bledsoe take to address : What steps should Mr. Bledsoe take to address Kayin's challenges? What professionals might he include to help Kayin?

User Account

All Pages