A pension fund manager expects to receive an inflow of funds in 60 days time. The...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A pension fund manager expects to receive an inflow of funds in 60 days time. The manager would like to use these funds to buy a stock that is currently trading at $25 per share. The manager is concerned that the stock price might increase over the next 60 days. The maximum amount the manager would be prepared to pay for the stock is $30. A financial institution offers the company the following contract. In 60 days time, if the stock price is above $30, the institution will compensate the fund manager for the difference between the spot price and $30. If the stock price is below $22, the fund manager will pay the institution the difference between $22 and the spot price. Please identify the options in this contract and provide a clear explanation to your answer. A pension fund manager expects to receive an inflow of funds in 60 days time. The manager would like to use these funds to buy a stock that is currently trading at $25 per share. The manager is concerned that the stock price might increase over the next 60 days. The maximum amount the manager would be prepared to pay for the stock is $30. A financial institution offers the company the following contract. In 60 days time, if the stock price is above $30, the institution will compensate the fund manager for the difference between the spot price and $30. If the stock price is below $22, the fund manager will pay the institution the difference between $22 and the spot price. Please identify the options in this contract and provide a clear explanation to your answer.
Expert Answer:
Answer rating: 100% (QA)
1call option The pension fund manager has entered a call op... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
A pension fund manager expects a cash inflow of $250 million in two weeks. He wishes to avoid missing a significant increase in equity prices over the next two weeks. Assume that the beta of the...
-
A bond is currently trading at $825. It has 12 years to maturity. If you require a rate of return of 12 percent, what should be the bonds coupon rate if the bond pays semi-annual coupons?
-
A pension fund manager is considering three mutual funds for investment. The first one is a stock fund, the second is a bond fund and the third is a money market fund. The money market fund yields a...
-
Solve e x+yi = 7.
-
Identify and describe limitations of ratio analysis.
-
Analysts typically have access to confidential or sensitive data during the requirements discovery phase of a project, particularly during fact-finding. Analysts need to be aware of situations where...
-
Redesign the fractionator of Example 6.8 using a random packing. The column is to be packed with 50-mm metal Pall rings. Determine the diameter of the tower, the height of packing in the stripping...
-
During requirements modeling for the new system, Susan Park met with fitness center managers at several Personal Trainer locations. She conducted a series of interviews, reviewed company records,...
-
37 Solve for N as a function of t, we get N = a(1-1) Some calculation details: +(1-a)) 38 Now let z = 1, a = 0.33, b = 2.15 and t = 0.5, the N you calculated in 37 is
-
The decedent used his own funds in the amount of $80,000 to acquire stock naming himself and his daughter as joint tenants with right of survivor ship. When the father died, the stock was worth...
-
Spider co-leases a fleet of vehicles to Web Co. for 5 years. The annual lease payment, due at the beginning of the year is $75,000 and the rate implicit in the lease is 8%. Web Co. records leases...
-
If the out-of-town funeral director, ask you to receive Ms. Allison from the county hospital and bring her to your firm and prepare her as he and his staff drive down from St. Louis. What is this...
-
Your client, Alicia, is applying for a $170,000 loan for a home with an appraised value of $230,000. What is the loan to value?
-
Identify the following parts of the business cycle using the figure to the right. The section of the curve to the left of point A is Point A is The section of the curve between points A and B is...
-
Caitlyn is interested in purchasing 1,500 shares of ABC, Inc., when the shares are issued. Her broker just gave her a preliminary prospectus to review as she waits for the shares to be cleared for...
-
Discuss Executive Pay Why has executive pay risen so much faster than the pay of ordinary workers? Be sure to discuss the economic theories that lead to pay rises Essay 1. Introduction, 2. Discussion...
-
Given the two triangles are similar. A = 3mm 5mm 20mm Find the ratio of perimeters (red to blue) Find the ratio of Areas (red to blue) Find the area of the blue triangle mm
-
Refer to the Conservation Ecology (Dec. 2003) study of the causes of forest fragmentation, presented in Exercise 2.166 (p. 97). Recall that the researchers used advanced high-resolution satellite...
-
Discuss the merits of a 50 percent hedging ratio.
-
An individual planning to retire at the end of three years has savings of approximately S212,000. In his planning, he uses a thirty-year life expectancy in retirement. He calculates his spending...
-
Jim Waugh specializes in cross-rate arbitrage. At a point in time, he noticed the following quotes: U.S. dollar in Swiss francs = SFr 1.5971 per $ U.S. dollar in Australian dollars = A$1.8215 per $...
-
Tedesco Company changed depreciation methods in 2015 from double-declining-balance to straight-line. Depreciation prior to 2015 under double-declining-balance was $90,000, whereas straightline...
-
Sesame Company purchased a computer system for 74,000 on January 1, 2013. It was depreciated based on a 7-year life and an 18,000 residual value. On January 1, 2015, Sesame revised these estimates to...
-
Goring Dairy leases its milking equipment from King Finance Company under the following lease terms. 1. The lease term is 10 years, non-cancelable, and requires equal rental payments of 30,300 due at...
Study smarter with the SolutionInn App