Questions from Business Statistics

Q: Explain why margin accounts are required when clients write options but not

Explain why margin accounts are required when clients write options but not when they buy options.

Q: Suppose that a European put option to sell a share for $

Suppose that a European put option to sell a share for $60 costs $8 and is held until maturity. Under what circumstances will the seller of the option (the party with the short position) make a profit...

Q: ‘‘Employee stock options issued by a company are different from regular

‘‘Employee stock options issued by a company are different from regular exchangetraded call options on the company’s stock because they can affect the capital structure of the company.’’ Explain this...

Q: A corporate treasurer is designing a hedging program involving foreign currency options

A corporate treasurer is designing a hedging program involving foreign currency options. What are the pros and cons of using (a) NASDAQ OMX and (b) the over-the counter market for trading?

Q: Suppose that a European call option to buy a share for $

Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held until maturity. Under what circumstances will the holder of the option make a profit? Under what circumstances wi...

Q: ‘‘When a futures contract is traded on the floor of the

‘‘When a futures contract is traded on the floor of the exchange, it may be the case that the open interest increases by one, stays the same, or decreases by one.’’ Explain this statement.

Q: A 4-month European call option on a dividend-paying

A 4-month European call option on a dividend-paying stock is currently selling for $5. The stock price is $64, the strike price is $60, and a dividend of $0.80 is expected in 1 month. The risk-free in...

Q: Suppose that in Example 3.2 of Section 3.3

Suppose that in Example 3.2 of Section 3.3 the company decides to use a hedge ratio of 0.8. How does the decision affect the way in which the hedge is implemented and the result?

Q: A futures price is currently 40. It is known that at

A futures price is currently 40. It is known that at the end of three months the price will be either 35 or 45. What is the value of a three-month European call option on the futures with a strike pri...

Q: Six-month LIBOR is 5%. LIBOR forward rates for the

Six-month LIBOR is 5%. LIBOR forward rates for the 6- to 12-month period and for the 12- to 18-month period are 5.5%. Swap rates for 2- and 3-year semiannual pay swaps are 5.4% and 5.6%, respectively....