The net gains and losses at different prices

Assignment Help Financial Management

Reference no: EM131828927

Assume you short a call option on a stock with a strike price of $25. The expiration is 3 months. The option premium is $2. Create a table showing the net gains/losses at expiration date at different stock prices. What is the breakeven price (i.e. the price at which the net gain is 0)?

Assume you buy a put option on a stock at a strike price of $30. You also sell a call option on the same stock at a strike price of $40. Both options have the same expiration date. The premium on the put is $2.5 and the premium on the call is $3.00. Draw a diagram showing the net gains/losses at different prices.

You currently own a stock, which you previously bought at a price of $60. Since the market has been up you now have some unrealized gains. However, you are uncertain about the immediate direction of the market, so you decide to protect your stock from any price decline. You buy a put option at a strike price of $70 at a premium of $5. The expiration is 6 months. Draw a diagram showing the net gains/losses of the combined position at different price levels of the stock at the expiration date.

Binomial tree. A stock price is currently $40. It is known that at the end of 1 month it will be either $42 or $38. The risk-free rate is 8% per annum with daily compounding. What is the value of a 1-month European call option with a strike price of $39?

Binomial tree. Use the same information as Problem 5. But calculate the value of a 1-month European put option with a strike price of $39. [Hint: Use exactly the same procedure as the call option but evaluate the put option payoffs instead].

Black-Scholes Model. What is the price of a European call option on a stock when the stock price is $52, the strike price is $50, the risk-free rate is 12% per annum, the volatility is 30% per annum, and the time to expiration is 3 months?

Put-call Parity. Using the result of Problem 7, calculate the price of a European put option.

Reference no: EM131828927

Questions Cloud

Financial institutions markets either direct : Ement to cover different tool to flow the Funds between the financial institutions and financial institutions markets either direct or indirect finance.

Determine amount by which stock index futures is mispriced : Determine the amount by which a stock index futures is mispriced if the stock index is at 200, the futures is at 202.5,

What is the expected or promised gross return on the loan : What is the expected or promised gross return on the loan?

Find net income and operating cash flow : Given the financial statements information above, find Net Income for 2014. Operating Cash Flow (OCF) for 2014.

The net gains and losses at different prices : Assume you buy a put option on a stock at a strike price of $30. Draw a diagram showing the net gains/losses at different prices.

Cash flow from assets : find Net Income for 2015. Cash Flow from Assets (CFFA) for 2015.

Determine the profit from an index arbitrage : Determine the profit from an index arbitrage if the stock ends up at 144 at expiration.

Calculate the project npv if the firm requires : Calculate the project’s NPV if the firm requires a 14 percent rate of return.

How has the introduction of decision-making tools : How has the introduction of decision-making tools under uncertainty added to your understanding of financial decision-making?

User Account

All Pages