Question
In: Finance
The price company A’s stock is $50 and the price of its 3-month European call option...
The price company A’s stock is $50 and the price of its 3-month European call option on the stock with a strike price of $52 is $2. Draw the payoff graph for the option buyer.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
a) The price company A’s stock is $50 and the price of its 3-month European call...
a) The price company A’s stock is $50 and the price of its
3-month European call option on the stock with a strike price of
$52 is $2. Draw the payoff graph for the option buyer.
b)The risk-free rate is 4% (compounded quarterly). The 3-month
European put option with a strike price of $52 is sold for $3. The
stock pays a quarterly dividend of $0.5. Given the call option
information in a), describe the arbitrage strategy and calculate
the...
Suppose that a 6-month European call A option on a stock with a strike price of...
Suppose that a 6-month European call A option on a stock with a
strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
(a) Construct a butterfly spread with the two kinds of options....
Suppose that a 6-month European call A option on a stock with a strike price of...
Suppose that a 6-month European call A option on a stock with
a strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
(a) Construct a butterfly spread with the two kinds of
options....
What is the price of a six-month European call option on a stock expected to pay...
What is the price of a six-month European call option on a stock
expected to pay a dividend of $1.50 in two months when the stock
price is $50, the strike price is $50, the risk-free interest rate
is 5% per annum and the volatility is 30% p.a.? Show all
working.
What is the price of a six-month European call option on a stock expected to pay...
What is the price of a six-month European call option on a stock
expected to pay a dividend of $1.50 in two months when the stock
price is $50, the strike price is $50, the risk-free interest rate
is 5% per annum and the volatility is 30% p.a.? Show all
working.
The current price of XYZ stock is $50, and two-month European call options with a strike...
The current price of XYZ stock is $50, and two-month European
call options with a strike price of $51 currently sell for $10. As
a financial analyst at Merrill Lynch, you are considering two
trading strategies regarding stocks and options. Strategy A
involves buying 100 shares and Strategy B includes buying 500 call
options. Both strategies involve an investment of $5,000.
a. How much is the profit (loss) for strategy A if the stock
closes at $65? (sample answer: $100.25...
Consider a European call option on a stock. The stock price is $65, the time to...
Consider a European call option on a stock. The stock price is
$65, the time to maturity is 8 months, the risk-free interest rate
is 10% p.a., the strike is $70, and the volatility is 32%. A
dividend of $1 will be paid after 3 months and again after 6
months. What is price of the option?
A one-month European call option on a non-dividend-paying stock is currently selling for$2.50. The stock price...
A
one-month European call option on a non-dividend-paying stock is
currently selling for$2.50. The stock price is $45, the strike
price is $50, and the risk-free interest rate is 5% per annum. What
opportunities are there for an arbitrageur?
A European call option and put option on a stock both have a strike price of...
A European call option and put option on a stock both have a
strike price of $21 and an expiration date in 4 months. The call
sells for $2 and the put sells for $1.5. The risk-free rate is 10%
per annum for all maturities, and the current stock price is $20.
The next dividend is expected in 6 months with the value of $1 per
share.
(a) describe the meaning of “put-call parity”. [2
marks]
(b) Check whether the...
A European call option and put option on a stock both have a strike price of...
A European call option and put option on a stock both have a
strike price of $21 and an expiration date in 4 months. The call
sells for $2 and the put sells for $1.5. The risk-free rate is 10%
per annum for all maturities, and the current stock price is $20.
The next dividend is expected in 6 months with the value of $1 per
share.
(a) In your own words, describe the
meaning of “put-call parity”.
(b) Check...
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