This is a practice question for a final not a homework of anykind

PDQ stock price:102

Riskless interest rate (simple interest, i.e., the Annual Percentage Rate):8.00% Option maturity:3 months

Volatility:0.30

Options are all European.

An option is for 1 share.Fractional shares and fractional options can be traded if you want to.

Options:StrikeCall priceCall deltaCall GammaPut pricePut deltaPut gamma

9511.750.02082 1/2-.250.0208

1008.630.02474-.370.0247

1056.500.02618-.500.0261

16.You buy 100 shares of PDQ stock and you make a covered call position by writing 100 of the 100 strike call options.

a)What is the cost of your position?

b)What will your position be worth in dollars if the stock price on expiration day is 105?

c)What will your rate of return be if the stock price on expiration day is 99?(Express the answer as an annualized rate at simple interest.)

d)What is the delta of your covered call position?

e)How many 105 strike puts should you trade if you want to make the covered call position delta neutral? Do you buy them or sell them?

f)What would the gamma be for the delta neutral position you designed in part e.?

g)Using the put-call parity relation, tell what other position should be equivalent to your covered call position (before you hedge)?