Question
In: Finance
A has a current spot price of $40. Assume the risk-free rate is 5%. Over the...
A has a current spot price of $40. Assume the risk-free rate is 5%. Over the next year, A could either move up to $64 (+60%) or move down to $25 (-37.5%).
1. Draw a single payoff diagram for an investor who buys the call and sells the put; both have strikes of $45. Add a second line incorporating the net premium.
2. A person buys two calls and sells one put. At what price for A will they break even.
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Expert Solution
ANSWER IN THE IMAGE((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.
2.
1.
jeff jeffy answered 2 years agoRelated Solutions
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Consider a one-year call with a $45 strike (out of the money).
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12. The spot price of an investment asset is $40 and the risk-free rate for all...
12. The spot price of an investment asset is $40 and the
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A) $46.32 B) $41.23 C) $43.55 D) $47.31
Current stock price is $50; volatility is 40%; risk free rate is 5%. We have an...
Current stock price is $50; volatility is 40%; risk free rate is
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ST). No dividend payments during the 6 months. Use a
2-step CRR binomial model to price this option.
Current stock price is $50; volatility is 40%; risk-free rate is 5%. We have an American...
Current stock price is $50; volatility is 40%; risk-free rate is
5%. We have an American style put option expires in 6 months. Its
strike price is the maximum price over the life of the option; this
means: its payoff in 6 months is max(0, Smax –
ST). No dividend payments during the 6 months. Use a
2-step CRR binomial model to price this option.
Assume the spot price of the British pound is currently $1.8. If the risk-free interest rate...
Assume the spot price of the British pound is currently
$1.8.
If the risk-free interest rate on 1-year government bonds is
4.4% in the United States and 7.2% in the United Kingdom, what must
be the forward price of the pound for delivery one year from
now?
(Do not round intermediate calculations. Round your answer to 3
decimal places.)
The current price of a stock is $32, and the annual risk-free rate is 5%. A...
The current price of a stock is $32, and the annual risk-free
rate is 5%. A call option with a strike price of $29 and with 1
year until expiration has a current value of $6.40. What is the
value of a put option written on the stock with the same exercise
price and expiration date as the call option? Do not round
intermediate calculations. Round your answer to the nearest
cent.
The annualized US risk-free rate is 8% and the Germany risk-free rate is 5%. Assume that...
The annualized US risk-free rate is 8% and the Germany
risk-free rate is 5%. Assume that any period rates less than a year
can be interpolated (i.e. if you invested for 6 months then you
would receive 4% in the US). The spot quote is €0.80/$ while the
3-month forward quote is €0.7994/$. You can borrow either
$1,000,000 or €800,000. According to IRP, is the forward quote
correct? If not, what should it be?
If the forward quote is not...
The annualized US risk-free rate is 8% and the Germany risk-free rate is 5%. Assume that...
The annualized US risk-free rate is 8% and the Germany
risk-free rate is 5%. Assume that any period rates less than a year
can be interpolated (i.e. if you invested for 6 months then you
would receive 4% in the US). The spot quote is €0.80/$ while the
3-month forward quote is €0.7994/$.You can borrow either $1,000,000
or €800,000. According to IRP, is the forward quote correct? If
not, what should it be?
If the forward quote is not correct,...
The spot price of an investment asset is $55 and the risk-free rate for all maturities...
The spot price of an investment asset is $55 and the risk-free
rate for all maturities (with continuous compounding) is 4%, and
the asset provides an income of $3 at the end of each year.
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The spot price of an investment asset is $30 and the risk-free rate for all maturities...
The spot price of an investment asset is $30 and the risk-free
rate for all maturities is 10% with continuous compounding. The
asset provides an income of $2 at the end of the first year and at
the end of the second year. What is the three-year forward price?
(Hint: First find the PV of $2 income at year 1 and year 2 using
10% rate and subtract it from spot price.)
$19.67
$35.84
$45.15
$40.50
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