Dan bought an option contract on BHP shares with an exercise price of $50 and an expiry

Fantastic news! We've Found the answer you've been seeking!

Question:

Dan bought an option contract on BHP shares with an exercise price of $50 and an expiry date in one month. The market price for BHP shares today is $47.81. The call price is trading at $0.35.

i. Calculate the break-even amount for the call position and draw a fully labelled diagram for both buyer of the option and seller of the option.

ii. At what minimum share price will the option buyer exercise the option on the expiration date? Provide reasoning in your answer.

Related Book For answer-question

Microeconomics An Intuitive Approach with Calculus

ISBN: 978-0538453257

1st edition

Authors: Thomas Nechyba

See More Books

Posted Date: Jun 13, 2023 12:34 AM

See More Questions

a)Maxi Hedge Fund has a substantial position in Carol shares. The share price has been volatile over the past 6 months, and a group of equity analysts working in the fund believe that the price may...
Telstra has borrowed a variable interest rate loan from ANZ. The management is concerned that a rise in interest rate could reduce profitability. How can Telstra use a financial instrument to manage...
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
Use the Ratio Test to determine if each series converges absolutely or diverges. 8 n=1 nt (-4)"
Show that the magnitude of the magnetic field produced at the center of a rectangular loop of wire of length L and width W, carrying a current i, is 2i (L? + W?)2 B = LW
Find the distance between each pair of points. Round your answer to the nearest tenth, if necessary. -4 --2 1 X
Tests of controls provide reasonable assurance that controls are applied as prescribed. A sampling method that is useful when testing controls is: a. Nonstatistical sampling. b. Attribute estimation...
Spectrum Hair Salon is considering expanding its business, as it is experiencing a large growth. The question is whether it should expand with a bigger facility than needed, hoping that demand will...
= 2. (18 Points) Two strain gages are mounted on a 16 oz can of Red Bull (223 calories, 148 mg caffeine) with internal cylindrical dimensions of R 1.1875 in and height H=6.52 in. The wall thickness...
The finance director of RM plc is considering several investment projects and has collected the following information about them. Projects D and E are mutually exclusive. The capital available for...
Create a Python class NumPow5 on your computer using pycharm editor, that has a list attribute called nums. The class methods take inputs from user, convert them to integer and store in the list. The...
Theory of Planned Behavior Sometimes people would like to change their behaviors. For example, they smoke and want to stop smoking, or they perennially are late to meetings and want to be on time....
Explain the following statement: Behaviors prime hormones; Hormones prime behavior. Sexual behavior primes aggression; Aggression primes sexual behaviors.
Why should a behavioral intervention plan (BIP), (also called behavioral change plan or behavioral support plan) be based on the results of a functional behavior assessment (FBA)? Explain.
Please help describe one intervention that used a health behavior theory or model, that was effective in modifying the health behavior of high risk sexual behavior?
What are the key considerations in integrating hazard analysis with system safety engineering and risk management frameworks, such as ISO 31000 and ANSI/ASSP Z590.3? Discuss the synergies and...
Your store is operational 312 days per year for business. Your annual demand is 18,575 items of product. The lead time to receive an inbound shipment order to resupply your store is 14 days. When the...
In Exercises evaluate the limit, using LHpitals Rule if necessary. lim 07x cos x X
Suppose that your tastes do not satisfy the convexity assumption. In particular, suppose the indifference curve corresponding to utility level uA has a shape like the indifference curves depicted in...
Historically, most of the diamond mines in the world have been controlled by a few companies and governments. Through clever marketing by diamond producers, many consumers have furthermore become...
Phone companies used to sell minutes of phone calls at the same price no matter how many phone calls a customer made. (We will abstract away from the fact that they charged different prices at...
The following covenants are extracted from the indenture of a bond issue. Although the bond due date is 2016, failure to comply with any covenant automatically advances the due date of the loan to...
You are engaged in an audit of the financial statements of Pate Corporation for the year ended December 31, 1999. The financial statements and records of Pate Corporation have not been audited by...
On May 1, 1999 you were engaged by a committee of shareholders to perform a special audit as of December 31, 1998, of the shareholders' equity of the Major Corporation, whose stock is actively traded...

Dan bought an option contract on BHP shares with an exercise price of $50 and an expiry

Question:

Expert Answer:

i To calculate the breakeven amount for the call position we need to consider the total cost of the ... View the full answer

Microeconomics An Intuitive Approach with Calculus

Students also viewed these finance questions