An investor wants to protect against a rise in the market yield on a Treasury bond. Should
Question:
Step by Step Answer:
An investor wanting to protect against a rise in the mark...View the full answer
Related Video
A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.
Students also viewed these Corporate Finance questions
-
An investor wants to select one of seven mutual funds for the coming year. Data showing the percentage annual return for each fund during five typical one-year periods are shown here. The assumption...
-
A rise in the dollar price of yen necessarily means a fall in the yen price of dollars. Do you agree? Illustrate and elaborate: The critical thing about exchange rates is that they provide a direct...
-
A coin-operated laundromat is for sale. An investor wants to determine the average daily revenue generated by this business. An estimate of the average daily revenue is to be found using a random...
-
Build Right Supply, Co., shows the following financial statement data for 2014, 2015, and 2016. Prior to issuing the 2016 statements, auditors found the ending inventory for 2014 was understated by...
-
A student takes this course at period 1 on Monday, Wednesday, and Friday. Period 1 starts at 7: 25 A. M. Consequently, the student sometimes misses class. The students attendance behavior is such...
-
a. Sometimes, our discussion of marginal cost and marginal revenue unintentionally hides the real issue: the entrepreneurs quest to maximize total profits. Here is information on a firm: Demand: P =...
-
Table 3.4 on page 208 shows the number of points scored and penalty minutes for 24 ice hockey players on the Ottawa Senators NHL team for the 2014-2015 season. The data are also stored in...
-
BookWeb, Inc., sells books and software over the Internet. A recent article in a trade journal has caught the attention of management because the company has experienced soaring inventory handling...
-
Armando Corporation consists of two manufacturing divisions: Crater Division and Dollar Division. The Crater Division manufactures and transfers partially processed components to the Dollar Division...
-
Imagine that Howard has asked you to write some queries to help him make better use of his data. For each information request below, write a single query that provides the answer set. When a task...
-
When the buyer of a put option on a futures contract exercises, explain the resulting position for the buyer and the writer.
-
What is the intrinsic value and time value of a call option on bond W given the following information? strike price of call option = 97 current price of bond W = 102 call option price = 9
-
The numbers of married-couple households (in millions) and the percentages of households that are married-couple households are shown in Table 24 for various years. Let p be the percentage of...
-
A company recently issued bonds with attached warrants. The bond-plus-warrants package sells at a price equal to its $1,000 face value. The bonds mature in 10 years and have a 6% annual coupon. The...
-
Enron Corporation entered 2001 as the seventh largest public company in the United States only to later exit the year as the largest company to ever declare bankruptcy in U.S history. Investors who...
-
The Zinn Company plans to issue $20,000,000 of 10-year bonds in March 2021 to help finance a new research and development laboratory. Assume that interest rate futures maturing in March 2021 are...
-
It was 9:30 A.M. on a Monday morning when the call came through. Hi Dr. Mitchell, do you have a minute? Sure, the professor replied. I am one of your former students, but if you don t mind, I would...
-
The Olsen Company has decided to acquire a new truck. One alternative is to lease the truck on a 4-year contract for a lease payment of $9,748 per year, with payments to be made at the beginning of...
-
Suppose that a conic has an equation of the form If the polar coordinates of two points on the graph are show that r ep 1 e sino
-
How many years will it take a $700 balance to grow into $900 in an account earning 5%?
-
A married couple filing jointly has a combined total adjusted gross income of $75,000. They have computed that their allowable itemized deductions are $4000. Compute their federal income tax.
-
Jane Shay operates a management consulting business. The business has been successful and now produces a taxable income of $65,000 per year after all "ordinary and necessary" expenses and...
-
Bill Alexander and his wife Valerie are both employed. Bill will have an adjusted gross income this year of $70,000. Valerie has an adjusted gross income of $2000 a month. Bill and Valerie have...
-
Shahid Pakistan Limited (SPL) is engaged in the production of three products: J, K and L. Following is the extract from its latest annual management accounts: Description J Products K Total L Units...
-
John Company produces hats and sells them for $100 each. His cost to produce the hats are: DM 20 per unit DL 30 per unit VMOH 10 per unit FMOH 40,000 Selling expenses are $5 per unit and are all...
-
John Company produces hats and sells them for $100 each. His cost to produce the hats are: DM 20 per unit DL 30 per unit VMOH 10 per unit FMOH 40,000 Selling expenses are $5 per unit and are all...
Study smarter with the SolutionInn App