Ask Basic Finance Expert

problem 1: prepare brief notes on:

a) Speculator.
b) Arbitrager.
c) Hedgers.

problem 2: Describe various types of orders and different types of margin.

problem 3: A call option with a strike price of $50 costs $2. A put option with a strike price of $45 costs $3. Describe how strangle can be made from such two options. What the pattern of profits is from strangled?

problem 4: Assume that put options on a stock with strike prices $30 and $35 cost $4 and $7, correspondingly. How can the options be used to create:

a) A bull spread and
b) A bear spread

Construct a table which shows the profit and payoff for both spreads.

problem 5: A call with a strike price of $60 costs $6. A put with the same strike price and expiration date costs $4. Construct a table which shows the profit from a straddle. For what range of stock prices would the straddle lead to a loss?

problem 6: An investor enters into two long futures contracts on frozen orange juice. Each contract is for the delivery of 15,000 pounds. The present futures price is 160 cents per pound, the initial margin is $6,000 per contract and the maintenance margin is $4,500 per contract. What price change would lead to a margin call? Under what conditions $2,000 could be withdrawn from the margin account?

problem 7: Assume that the current spot price of gold is S = $350 per oz, the risk-free three-month rate of interest is 3% and there are no costs of holding gold. Determine the three-month forward price of gold?

problem 8: The forward price of wheat for delivery in three months is $3.90 per bushel, while the spot price is $3.60. The three-month interest rate in continuously compounded terms is 8% per annum. Is there an arbitrage opportunity in this market if wheat might be stored costless?

problem 9: Assume that the current price of gold is $365 per oz and that gold might be stored costless. Also assume that the term structure is ?at with a continuously compounded rate of interest of 6% for all maturities.

a) Compute the forward price of gold for delivery in three months.
b) Now assume that it costs $1 per oz per month to store gold (payable monthly in advance). Determine the new forward price?
c) Suppose storage costs are as in part (b). If the forward price is given to be $385 per oz, describe whether there is an arbitrage opportunity and how to exploit it.

problem 10: What is the price of a European call option on a non-dividend-paying stock when the stock price is $52, the strike price is $50, the risk-free interest rate is 12% per annum, the volatility is 30% per annum and the time to maturity is three months?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92845

Have any Question?


Related Questions in Basic Finance

Question utilizing the concepts learned throughout the

Question: Utilizing the concepts learned throughout the course, write a Final Paper on one of the following scenarios: • Option One: You are a consultant with 10 years experience in the health care insurance industry. A ...

Discussion your initial discussion thread is due on day 3

Discussion: Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your r ...

Question financial ratios analysis and comparison

Question: Financial Ratios Analysis and Comparison Paper Prior to completing this assignment, review Chapter 10 and 12 in your course text. You are a mid-level manager in a health care organization and you have been aske ...

Grant technologies needs 300000 to pay its supplier grants

Grant Technologies needs $300,000 to pay its supplier. Grant's bank is offering a 210-day simple interest loan with a quoted interest rate of 11 percent and a 20 percent compensating balance requirement. Assuming there a ...

Franks is looking at a new sausage system with an installed

Franks is looking at a new sausage system with an installed cost of $375,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped ...

Market-value ratios garret industries has a priceearnings

(?Market-value ratios?) Garret Industries has a? price/earnings ratio of 19.46X a. If? Garret's earnings per share is ?$1.65?, what is the price per share of? Garret's stock? b. Using the price per share you found in par ...

You are planning to make annual deposits of 4440 into a

You are planning to make annual deposits of $4,440 into a retirement account that pays 9 percent interest compounded monthly. How large will your account balance be in 32 years?  (Do not round intermediate calculations a ...

One year ago you bought a put option on 125000 euros with

One year ago, you bought a put option on 125,000 euros with an expiration date of one year. You paid a premium on the put option of $.05 per unit. The exercise price was $1.36. Assume that one year ago, the spot rate of ...

Common stock versus warrant investment tom baldwin can

Common stock versus warrant investment Tom Baldwin can invest $6,300 in the common stock or the warrants of Lexington Life Insurance. The common stock is currently selling for $30 per share. Its warrants, which provide f ...

Call optionnbspcarol krebs is considering buying 100 shares

Call option  Carol Krebs is considering buying 100 shares of Sooner Products, Inc., at $62 per share. Because she has read that the firm will probably soon receive certain large orders from abroad, she expects the price ...

  • 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