# Question

a. Suppose you enter into a long 6-month forward position at a forward price of $50. What is the payoff in 6 months for prices of $40, $45, $50, $55, and $60?

b. Suppose you buy a 6-month call option with a strike price of $50. What is the payoff in 6 months at the same prices for the underlying asset?

c. Comparing the payoffs of parts (a) and (b), which contract should be more expensive (i.e., the long call or long forward)? Why?

b. Suppose you buy a 6-month call option with a strike price of $50. What is the payoff in 6 months at the same prices for the underlying asset?

c. Comparing the payoffs of parts (a) and (b), which contract should be more expensive (i.e., the long call or long forward)? Why?

## Answer to relevant Questions

a. Suppose you enter into a short 6-month forward position at a forward price of $50. What is the payoff in 6 months for prices of $40, $45, $50, $55, and $60? b. Suppose you buy a 6-month put option with a strike price of ...Suppose that you buy the S&R index for $1000, buy a 1000-strike put, and borrow $980.39. Perform a payoff and profit calculation mimicking Table 3.1. Graph the resulting payoff and profit diagrams for the combined position. In the previous problem we saw that a ratio spread can have zero initial premium. Can a bull spread or bear spread have zero initial premium? A butterfly spread? Why or why not? Suppose you short the S&R index for $1000 and buy a 1050-strike call. Construct payoff and profit diagrams for this position. Verify that you obtain the same payoff and profit diagram by borrowing $1029.41 and buying a ...What happens to the variability of Wirco's profit if Wirco undertakes any strategy (buying calls, selling puts, collars, etc.) to lock in the price of copper next year? You can use your answer to the previous question to ...Post your question

0