Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Corporate Finance Expert

Q1 (Delta Hedging)

On Sept 30th, 2011, Exxon Mobil (XOM) stock was traded at $72.63 while the December XOM put option with $75 exercise price is traded at $5.00 and the December XOM call option with $70 exercise price is traded at $5.60. The put option's delta is -0.65 and the call option's delta is 0.7.

A) On October 3rd, XOM stock price changed to $71.15 on Oct 3rd, what will be the values of the put and call options?
B) Consider a portfolio composed of:
1,005 XOM stocks
20 Dec XOM Call options
37 Dec XOM Put options
What is the portfolio position delta?
C) Using the portfolio position delta, calculate the portfolio value before AND after the stock price change.

Q2 (Risk Profile)

The ABC Oil Company is exposed to the fluctuations of the crude oil price. The risk profile of its net income for the current fiscal year as a function of the crude oil price (spot on March 15, 2001) is given in the graph. The company wishes to make its income independent of the crude oil price using the call options with various exercise prices as indicated in cells [I3:J9]. The contract size of the option is 1000 barrel of crude oil and the net income is in thousands.

2025_figure.jpg

A) What is the appropriate hedging strategy using call options?

B) What is the cash flow of the hedging strategy? Indicate whether or not the cash flows will be positive or negative for the ABC company.

C) What is the level of income with the hedging strategy?

Q3 (Bull Spread)

AstraZeneca plc (AZN) stock was trading at $45 on August 3, 2011 and the following options prices are available:
SEPT 40 put - $1.50
SEPT 50 put - $6
SEPT 40 call - $6
SEPT 50 call - $1
A) What would you do to take a bull spread position using put options?
B) What is the net premium or cost of such a spread? Indicate whether you have to pay or to receive net premium.
C) What is the maximum gain possible on expiration?
D) What is the maximum loss possible on expiration?
E) What is the break-even point of AZN on expiration?

Q4 (Box Spread)
AstraZeneca plc (AZN) stock was trading at $45 on August 16, 2011 and the following options prices are available:
Sept 40 put - $1.50
Sept 50 put - $6
Sept 40 call - $6
Sept 50 call - $1

Consider a long box spread using AZN by buying a bull call spread and buying a bear put spread. Answer the following questions.
A) What is the cost of the bull call spread?
B) What is the cost of the bear put spread?
C) What is the value of the box spread on expiration date. Assume the expiration is on Sept 16?
D) If the risk-free annual interest rate is 4%, is there an arbitrage opportunity? If so, explain a strategy to profit from the market condition and show the amount of arbitrage profit from your strategy.

Q5 (Strangle)
AstraZeneca plc (AZN) stock was trading at $45 in AUG and the following options prices are available:
SEPT 40 put - $1.50
SEPT 50 call - $1

Consider a short strangle using AZN by selling one SEPT 40 put and one SEPT 50 call. Answer the following questions.
A) What is the maximum profit you would expect from the strangle?
B) What are the two break-even prices for AZN on expiration?
C) What is the maximum loss you might experience from the strangle?
D) The stock price declined to $39 on the expiration. What is the amount of profit or loss from the short strangle?

Attachment:- options.rar

Corporate Finance, Finance

  • Category:- Corporate Finance
  • Reference No.:- M93111399
  • Price:- $55

Guranteed 36 Hours Delivery, In Price:- $55

Have any Question? 


Related Questions in Corporate Finance

Discussion question -what have you learned about financial

Discussion Question - What have you learned about financial derivatives? What concepts learned do you plan to utilize in your current job, career, and personal life?

Investment management assignment -in this assignment you

Investment Management Assignment - In this assignment you will be computing bond prices, modified durations and holding period returns. You will also implementing a hedging strategy for a stream of liabilities. Data Desc ...

Strategic and financial decision-making referral

Strategic and Financial Decision-making Referral Assignment- The following assignment is based on HYPOTHETICAL scenarios related to Tesco plc. Task 1 - Tesco plc is contemplating introducing a new computer system which i ...

Assignment - credit card liabilities and fraudwhen a credit

Assignment - Credit Card Liabilities and Fraud When a credit card is lost or stolen, it can be used until its owner reports it as missing. This loss of one's credit card can result in fraud and therefore, being aware of ...

Questions -q1 fv of ordinary annuity what is the future

Questions - Q1: (FV of Ordinary Annuity) What is the future value of a $50 annuity payment over 20 years if the interest rates are 6%? Q2: (PV of Ordinary Annuity) What is the present value of above annuity? Q3: (FV and ...

Business finance assignment -the main objective of this

BUSINESS FINANCE ASSIGNMENT - The main objective of this assignment is to emphasis the importance of consideration time value of money in financial management decisions. It will cover time value of money, investment valu ...

Financial modelling assignment -1 today is 1 january 2018

Financial Modelling Assignment - 1. Today is 1 January 2018. Jackson who is aged 80 has a portfolio which consists of three different types of financial instruments (henceforth referred to as instrument A, instrument B a ...

Principles of financial investment assignment - the market

Principles of Financial Investment Assignment - "The market can solve all of society's needs." Discuss the above statement with particular reference to the financial markets. Your essay should be approximately 2,000 word ...

Question - an 8 bond with remaining maturity of 8 years is

Question - An 8% Bond with remaining maturity of 8 years is quoted in the Band Market at 89.33 at current going market interest rate of 10%. If the market interest rate suddenly goes up from 10% t0 15%, the Price of this ...

Corporate finance assignment - required this assessment

Corporate Finance Assignment - Required: This assessment task is a written report and analysis of the financial performance of a selected company in order to provide financial advice to a wealthy investor. It will be bas ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As