You believe that the current escalation in global politics will increase the volatility in the stock price
Fantastic news! We've Found the answer you've been seeking!
Question:
Call option with premium at $1.06 and strike price of $30
Call option with premium at $0.68 and strike price of $31
Put option with premium a $1.76 and strike price-of$30 4.
Put option with premium at $1.21 and strike price-of$29
How can you combine the above options to benefit from a potential increase in volatility in the share price of BP plc using the Straddle and Strangle strategies?
What will your profit be if the price moves to a) $35 or b) $31 after one month for each of the two strategies?
Which strategy would you follow if you expected a decline in price volatility? Use examples of price changes to demonstrate the advantages and disadvantages of this strategy.
QUESTION 2
Sam's firm has lent £3,000,000 to Monika's firm. Monika's firm has not been performing well in the last few months and bankruptcy is a realistic scenario. Sam is getting worried about receiving back the money that his firm invested and hires you to calculate the risk exposure. The recovery rate is 20%, the probability of survival in the previous period is 50% and the hazard rate is 25%.
Required:
Calculate the loss given default, the probability of default and the expected loss.
Explain what your findings mean for Sam's firm.
Related Book For
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
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