Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Management Theories Expert

problems on Options and Options valuation

(1) Both a call and a put currently are traded on stock XYZ; both have strike prices of $50 and expirations of 6 months.  What would be the profit to an investor who buys the call for $4 in the following scenarios for stock prices in 6 months? What would be the profit in each situation to an investor who buys the put for $6?

    Prevailing stock price    Value of call at expiration    Initial cost    Profit
a.    $40           
b.    $45           
c.    $50           
d.    $55           
e.    $60           

    Prevailing stock price    Value of put at expiration    Initial cost    Profit
a.    $40           
b.    $45           
c.    $50           
d.    $55           
e.    $60           

(2) Use the figures showing the prices of various IBM options to compute the payoff and the profits for investments in each of the following February maturity options, assuming that the stock price on the maturity date is $105.

a.  Call option, K = $100
b.  Put option, K = $100
c.  Call option, K = $105
d.  Put option, K = $105
e.  Call option, K = $110
f.  Put option, K = $110

(3) The common stock of the PP Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out that range in the next 3 months.  You don’t know whether it will go up or down, however.  The present price of the stock is $100 per share, and the price of a 3-month call option at an exercise price of $100 is $10.

(a)  If the risk-free interest rate is 10% per year, what should be the price of a 3-month put option on PP stock at an exercise price of $100?  (The stock pays no dividends)

(b) What will be a simple options strategy to exploit your conviction about the stock price’s future movements?  How far will it have to move in either direction for you to make a profit on your initial investment?

(4)  The common stock of the CC Corporation has been trading in a narrow price range of around $50 for months, and you are convinced it is going to stay in that range for the next 3 months.  The price of a 3-month put option with an exercise price of $50 is $4.

(a) If the risk-free interest rate is 10% per year, what should be the price of a 3-month call option on CC stock at an exercise price of $50 if it is in the money?  (The stock pays no dividends)

(b) What will be a simple options strategy using a put and a call to exploit your conviction about the stock price’s future movements?  What is the most money you could make on this position? How far can the stock price move in either direction before you lose money?

(5) The present stock price of International Wood is $69 and the stock does not pay dividends.  The immediate risk free rate of return is 10%.  The immediate standard deviation of International Wood’s stock is 25%.  You wish to purchase a call option on this stock with an exercise price of $70 and expiration date 73 days from now.  Using the Black-Scholes Options Pricing Model, how much should the call option be worth today? 

(6) The present stock price of International Wood is $69 and the stock does not pay dividends.  The immediate risk free rate of return is 10%.  The immediate standard deviation of International Wood’s stock is 25%.  You wish to purchase a put option on this stock with an exercise price of $70 and expiration date 73 days from now.  Using the Black-Scholes Options Pricing Model, how much should the put option be worth today?

PLEASE NOTE: SHOW ALL YOUR CALCULATIONS STEP IN STEP, AND CLEAR.

Management Theories, Management Studies

  • Category:- Management Theories
  • Reference No.:- M91146

Have any Question? 


Related Questions in Management Theories

Assignment annual reviewimagine you work at a company and

Assignment: Annual Review Imagine you work at a company and it is time for an employee named Jim's annual review. While he was a model employee the first nine (9) months of the year, recently Jim has been coming in late. ...

Identity the supply chain process of anti retro virus drugs

Identity the supply chain process of anti retro virus drugs by NACO of GOVT OF INDIA With its comparable to planning framework and enables with four different head 1.demand management 2.supply management 3. enablers 4. i ...

Assignmentusing an aggregate demand and supply diagram

Assignment Using an aggregate demand and supply diagram (please graph) explain how each of the following scenarios affects the equilibrium price level and aggregate output. Is there a difference in the Short Run versus t ...

1 a is an example of a first-line managera shift managerb

1. A ________ is an example of a first-line manager. A. shift manager. B. division manager. C. store manager. D. regional manager. 2. Establishing strategies for achieving organizational goals is a part of the ________ f ...

Part a written reportyou are required to prepare a report

Part A: Written Report You are required to prepare a report addressing the criteria below in accordance with the AIB assessment guide and style guide requirements. We have provided an Assignment template below to assist ...

Requirement-each week you are required to engage with the

REQUIREMENT- Each week, you are required to engage with the material by writing a short discussion of how the material relates to the topic(s) of this subject and how it relates to your own personal experience. You creat ...

Individual assignment reflective essaythe individual

Individual Assignment: Reflective Essay The individual written assignment will take the form of individual reflection upon some aspect of your personal experience of management and organisations. Throughout the module, a ...

Question 1 distinguish between ethical and legal principles

Question 1. Distinguish between ethical and legal principles and practices and define your concept of ethical behavior as it relates to the purchasing and supply management function. Question 2. Discuss the concepts asso ...

Task 1in task 1 answer each section with brief factual and

Task 1 In Task 1 answer each section with brief, factual and concise statements. 1 Prepare a detailed flow chart illustrating the process of quality control that is employed within your area of responsibility. Include no ...

Supply chain planning and control moduleyou are to submit

SUPPLY CHAIN PLANNING AND CONTROL MODULE You are to submit an individual report (3000 words, +/- 10%) based on a company of your choice, identifying and analysing its supply chain planning & control issues and providing ...

  • 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

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen