An investor wrote a 45-strike European call option on an index with three years to expiration. The

Question:

An investor wrote a 45-strike European call option on an index with three years to expiration. The premium for this option was 4.

The investor also bought a 55-strike European call option on the same index with three years to expiration. The premium for this option was 2.5.

The continuously compounded risk-free interest rate is 2%.

Calculate the index price at expiration that will allow the investor to break even.

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

Step by Step Answer:

Related Book For answer-question

Derivative Pricing

ISBN: 9780367734213

1st Edition

Authors: Ambrose Lo

See More Books

Question Posted: Nov 22, 2023 08:11 AM

See More Questions

a. Stock market index information: S&P 500 (stock) index level: Nasdaq Composite (stock) index level: b. Interest rate information : Prime rate: Federal funds rate: Commercial paper rate (90 days):...
An investor bought a 70-strike European put option on an index with six months to expiration.The premium for this option was 1. The investor also wrote an 80-strike European put optionon the same...
An investor bought a 70-strike European put option on an index with six months to expiration. The premium for this option was 1. The investor also wrote an 80-strike European put option on the same...
The current quoted price of a 13% coupon bond is $110. It pays coupon semi-annually. The next coupon will be paid in 6-days (total number of days in this semi-annual period is 181) and the futures...
What is a permanent difference? Give two examples.
In your experience, are leaders flexible enough to adapt leadership styles to the situation or followers? Explain.
99 percent per month. In 2014, Boling resolved his suit against the gas can manufacturer. Shortly thereafter, Prospect sent Boling a Schedule of Purchases, asserting that Boling owed Prospect...
McKnight Handcraft is a manufacturer of picture frames for large retailers. Every picture frame passes through two departments: the assembly department and the finishing department. This problem...
The local theater company is choosing its next play. The company's members recently held a vote to decide which of three choices - Elektra, Tartuffe, and Hamlet - the company will perform. The...
Consider a box spread based on two distinct strike prices K and L with K < L that is used to lend money, so that there is a positive cost to this transaction up front, but a guaranteed positive...
The following table shows the premiums of European call and put options having the same nondividend-paying stock, the same time to expiration but different strike prices: An investor constructs a...
How does the pressure at the bottom of a 76-cm column of mercury in a barometer compare with the air pressure at the bottom of the atmosphere?
Three springs are stretched to various lengths (As) and the corresponding forces are plotted in the graph to the right. What is the correct ranking of the spring constants? A. k3> k> k F sp B. k => k...
1) Consider a wave packet for which A(K) = {0 (N, Obtain (x, 0), Ak, Ax and show that Ak^x is independent of k - 2K x 2K elsewhere
(a) When opening a door, you push on it perpendicularly with a force of 43.0 N at a distance of 0.520 m from the hinges. What torque (in Nm) are you exerting relative to the hinges? (Enter the...
What is the direction (angle (in degrees), measured counterclockwise relative to +x axis) of vector of magnitude Q? Please print your answer with 1 decimal place. P 0 1 1 X
1 The empirical formula for sodium sulfide would have how many sodium atoms & how many sulfurpatoms? 2 sodiums & 1 sulfur 3 sodiums & 2 sulfurs 1 sodium & 1 sulfur 1 sodium & 2 sulfurs Question 2 The...
Problem 1: Plastics Inc. is a company that operates in four different divisions. The following information relating to each segment is available for 2013. Sales revenue Cost of goods sold Operating...
Continuation of Exercise 4-83. (a) What is the probability that the first major crack occurs between 12 and 15 miles of the start of inspection? (b) What is the probability that there are no major...
The owner of a downtown parking lot has employed a civil engineering consulting firm to advise him on the economic feasibility of constructing an office building on the site. Bill Samuels, a newly...
An oil company plans to purchase a piece of vacan1 land on the comer of two busy streets for $70,000. On properties of this type, the company installs businesses of four different types. *Cost of...
A firm is considering three mutually exclusive alternatives as part of a production improvement program. The alternatives are as follows: For each alternative, the salvage value at the end...
+ Use the table below for questions 5 and 6. Today is July 6th. The continuously compounded risk- free rates are 0.0503 (July 17th), 0.0535 (August 21st), 0.0571 (October 16th). The stock price is...
Suppose that we are drilling an oil well. The drilling rig costs $1300 today, and in one year the well is either a success or a failure. The outcomes are equally likely. The discount rate is 4%. The...
On January 2, 2014, Cain, Inc. agreed to pay its newly hired chief financial officer\ $550,000 under a deferred compensation arrangement. Cain should have recorded this\ expense in its income...

An investor wrote a 45-strike European call option on an index with three years to expiration. The

Question:

Step by Step Answer:

Answer To calculate the index price at expiration that will allow the investor to break even we need to consider the different strike prices and premiums of the call options Lets denote the index pric...View the full answer

Derivative Pricing

Students also viewed these Business questions