The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it is going to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price of the stock is $130 per share, and the price of a 6 month call option at an exercise price of $130 is $10.85. Required: a. If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $130? (The stock pays no dividends.) b. What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would it have to move in either direction for you to make a profit on your initial investment? Complete this question by entering your answers in the tabs below. Required A Required B If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $130? (The stock pays no dividends.) Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price of a six-month put option on P.U.T.T. stock Required A Required B What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would it have to move in either direction for you to make a profit on your initial investment? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Strategy The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it is going to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price of the stock is $130 per share, and the price of a 6 month call option at an exercise price of $130 is $10.85. Required: a. If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $130? (The stock pays no dividends.) b. What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would it have to move in either direction for you to make a profit on your initial investment? Complete this question by entering your answers in the tabs below. Required A Required B If the semiannual risk-free interest rate is 5%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $130? (The stock pays no dividends.) Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price of a six-month put option on P.U.T.T. stock Required A Required B What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would it have to move in either direction for you to make a profit on your initial investment? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Strategy
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
On December 31, Alvare Company estimates its bad debts to be .5% of its annual credit sales of $875,000. They use the allowance method. Prepare the Journal entries for December 31 recording the Bad...
-
Based on your analysis in question C.8, propose one measure to improve the companys responsible human resources activities. Send your proposal to the contact mail address mentioned in the report.
-
Cash and cash equivalents, December 3 1 prior year - end $ 2 6 , 0 0 0 Cash and cash equivalents, December 3 1 current year - end 4 7 , 1 1 2 Cash received as interest 2 , 6 0 0 Cash paid for...
-
The Mann Corporation began operations in 2015. Information relating to the companys purchases of inventory and sales of products for 2015 and 2016 is presented below. Calculate the FIFO cost of goods...
-
Your company currently has $1000 par, 6% coupon bonds with ten years to maturity and a price of $1078. If you want to issue new ten-year coupon bonds at par, what coupon rate do you need to set?...
-
Granite Furniture Store has the following sales forecast for the first 4 months of the year. In month one, Granite generated $45,000 in cash sales and $200,000 in credit sales. In month two Granite...
-
Solution: Locate the centroid of the plate area shown in Fig. 2 ft + 1 ft 1 ft 2 ft (a) -3 ft-
-
DillCo borrows $ 2 0 0 , 0 0 0 pm September 1 , 2 0 x 0 , from First Bancorp. Monthly interest is $ 1 , 2 0 0 . The loan agreement requires DillCo to pay the interest every 6 months. The first...
-
B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $144,000 and has a 12-year life and no salvage value. The...
-
Sam College allocates support department costs to its individual schools using the step - down method. Information for May 2 0 0 3 follows: Support Departments Maintenance Power Cost incurred $ 9 9 ,...
-
Let f(x, y) = 2x-3y+7. Find the following values of f(x, y) (a)f(3, -1) f(3, 1) = (Simplify your answer.)
-
Company D has decided to use group depreciation based on the straight-line depreciation method. The initial pool of assets on which the group depreciation rate is based is as follows: Acquisition...
-
Colours Limited owns shares in two entities of which the details are as follows: Investment in Blue Limited Colours Limited acquired 70% and control over Blue Limited for R580 000 on 1 January 2021....
-
You are planning to purchase your first home five years from today. The required down payment will be $50,000. You currently have $20,000. but you plan to contribute $500 each quarter to a special...
-
(a) What would you look for in a simplex tableau in order to conclude that a problem is unbounded? (b) What would you look for in a simplex tableau in order to detect a degeneracy? (c) What...
-
You may have thought of trying the method of Lagrange multipliers to find optimal solutions, since, after the introduction of slack variables into the standard maximum problem, the problem has the...
-
Consider the problem: (a) Sketch the feasible region, find the coordinates of the corner points, and find the optimal value. (b) Repeat (a) if the right-hand side constants are changed to \(6+h_{1}\)...
Study smarter with the SolutionInn App