a. Assume an institutional investor writes a March put option on shares of the DBS with...
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a. Assume an institutional investor writes a March put option on shares of the DBS with an exercise price of 280 and a March expiry date at a price of 10. Calculate the profit and loss at the expiry date for this investor with the prices of 320 and 265. Draw the profit graph of this option (6 marks) b. Assume an investor takes 2 positions: first, a long position in a call option with an exercise price of 55 and a premium of 10; second, a long position in a put option with the exercise price of 55 and a premium of 9. What is the name of this combination strategy? When do investors make profit from this strategy? Show the profit diagrams for both the positions and also for the combination strategy. Calculate the breakeven points. (8 marks) c. Determine the lower bound of the price (minimum price) for a six month call when the share price is 115, the put's exercise price is 100, and the interest rate for the six month period is 6.5 per cent. (3 marks) d. Draw a profit and loss diagram that shows an investment in two long puts, given an exercise price of 40 for the puts and a price for a put option of 6. (3 marks) a. Assume an institutional investor writes a March put option on shares of the DBS with an exercise price of 280 and a March expiry date at a price of 10. Calculate the profit and loss at the expiry date for this investor with the prices of 320 and 265. Draw the profit graph of this option (6 marks) b. Assume an investor takes 2 positions: first, a long position in a call option with an exercise price of 55 and a premium of 10; second, a long position in a put option with the exercise price of 55 and a premium of 9. What is the name of this combination strategy? When do investors make profit from this strategy? Show the profit diagrams for both the positions and also for the combination strategy. Calculate the breakeven points. (8 marks) c. Determine the lower bound of the price (minimum price) for a six month call when the share price is 115, the put's exercise price is 100, and the interest rate for the six month period is 6.5 per cent. (3 marks) d. Draw a profit and loss diagram that shows an investment in two long puts, given an exercise price of 40 for the puts and a price for a put option of 6. (3 marks)
Expert Answer:
Answer rating: 100% (QA)
a To calculate the profit and loss at the expiry date for the investor who wrote the March put option we need to consider two scenarios one with the stock price at 320 and one at 265 Scenario 1 Stock ... View the full answer
Related Book For
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
Posted Date:
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