Problem a stock currently sells for 50 in six months it

Assignment Help Portfolio Management

Reference no: EM13381955

Problem

A stock currently sells for $50. In six months, it will either rise to $55 or decline to $45. The risk-free interest rate is 6% per year.

1. Find the value of a European call option with an exercise price of $50.

2. Find the value of a European put option with an exercise price of $50, using the binomial approach.

3. Verify the put-call parity using the results of Questions 1 and 2.

Problem

An investor sold seven contracts of June/2012 corn. The price per bushel was $1.64, and each contract was for 5000 bushels. The initial margin deposit is $2000 per contract with the maintenance margin at $1250.

1. How much did the investor have to deposit on the investment?

2. The prices of the futures on the four days following the short sales were 1.60, 1.66, 1.70, and 1.75. Calculate the current balance on each of the next four days.

3. If the investor closed out her position on the fifth day, what was her final gain or loss over the five days in dollars and as a percentage of investment?

4. If the investor kept her position, and the futures price on the sixth day was 1.80, would the investor face a margin call? If yes, how much would she need to put up?

Reference no: EM13381955

Questions Cloud

Phone home inc is considering a new 4-year expansion : phone home inc. is considering a new 4-year expansion project that requires an initial fixed asset investment of 3

The default-free yield curve on zero-coupon us government : the default-free yield curve on zero-coupon u.s. government treasury securities is given below.maturity in years rate1

Problemnbsp the following performance information given to : problemnbsp the following performance information given to youbenchmark portfoliojoes portfoliokims

Problem 1suppose the us dollar and euro interest rate for : problem 1suppose the us dollar and euro interest rate for the next one year are 1.5 and 2 respectively. both are

Problem a stock currently sells for 50 in six months it : problem a stock currently sells for 50. in six months it will either rise to 55 or decline to 45. the risk-free

Problemthe following information is given about options on : problemthe following information is given about options on the stock of a certain companys0 20 x 20 r 5 c.c. t 0.5

Firm a has 20000 in assets entirely financed with : firm a has 20000 in assets entirely financed with equity.firm b also has 20000 in assets financed by 10000 in debt with

1 firm valuationa obtain the cost of equity capital and the : 1. firm valuationa. obtain the cost of equity capital and the perpetuity growth rate from the two stage dividend

Central city construction ccc needs 1 million of assets to : central city construction ccc needs 1 million of assets to get started and it expects to have a basis earning power

User Account

All Pages