Questions from Business Statistics

Q: When is it appropriate for an investor to purchase a butterfly spread

When is it appropriate for an investor to purchase a butterfly spread?

Q: A stock price is currently $50. It is known that

A stock price is currently $50. It is known that at the end of 2 months it will be either $53 or $48. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a 2...

Q: The futures price of an asset is currently 78 and the risk

The futures price of an asset is currently 78 and the risk-free rate is 3%. A six-month put on the futures with a strike price of 80 is currently worth 6.5. What is the value of a sixmonth call on the...

Q: Suppose that put options on a stock with strike prices $30

Suppose that put options on a stock with strike prices $30 and $35 cost $4 and $7, respectively. How can the options be used to create (a) a bull spread and (b) a bear spread? Construct a table that s...

Q: Use put–call parity to show that the cost of a

Use put–call parity to show that the cost of a butterfly spread created from European puts is identical to the cost of a butterfly spread created from European calls.

Q: A trader buys a call option with a strike price of $

A trader buys a call option with a strike price of $30 for $3. Does the trader ever exercise the option and lose money on the trade? Explain your answer.

Q: An investor believes that there will be a big jump in a

An investor believes that there will be a big jump in a stock price, but is uncertain as to the direction. Identify six different strategies the investor can follow and explain the differences among t...

Q: How can a forward contract on a stock with a particular delivery

How can a forward contract on a stock with a particular delivery price and delivery date be created from options?

Q: ‘‘A box spread comprises four options. Two can be combined

‘‘A box spread comprises four options. Two can be combined to create a long forward position and two to create a short forward position.’’ Explain this statement.

Q: A bank enters into an interest rate swap with a nonfinancial counterparty

A bank enters into an interest rate swap with a nonfinancial counterparty using bilaterally clearing where it is paying a fixed rate of 3% and receiving LIBOR. No collateral is posted and no other tra...