Questions from Business Statistics

Q: Explain two ways in which a bear spread can be created.

Explain two ways in which a bear spread can be created.

Q: What does a stop order to sell at $2 mean?

What does a stop order to sell at $2 mean? When might it be used? What does a limit order to sell at $2 mean? When might it be used?

Q: A trader sells a put option with a strike price of $

A trader sells a put option with a strike price of $40 for $5. What is the trader’s maximum gain and maximum loss? How does your answer change if it is a call option?

Q: Call options on a stock are available with strike prices of $

Call options on a stock are available with strike prices of $15, $1712 , and $20, and expiration dates in 3 months. Their prices are $4, $2, and $12 , respectively. Explain how the options can be used...

Q: A stock price is $29. A trader buys one call

A stock price is $29. A trader buys one call option contract on the stock with a strike price of $30 and sells a call option contract on the stock with a strike price of $32.50. The market prices of t...

Q: A bank offers a corporate client a choice between borrowing cash at

A bank offers a corporate client a choice between borrowing cash at 11% per annum and borrowing gold at 2% per annum. (If gold is borrowed, interest must be repaid in gold. Thus, 100 ounces borrowed t...

Q: Explain why collateral requirements will increase in the OTC market as a

Explain why collateral requirements will increase in the OTC market as a result of new regulations introduced since the 2008 credit crisis.

Q: A trader has a put option contract to sell 100 shares of

A trader has a put option contract to sell 100 shares of a stock for a strike price of $60. What is the effect on the terms of the contract of (a) A $2 dividend being declared (b) A $2 dividend being...

Q: Suppose the risk-free rates are as in Problem 4.

Suppose the risk-free rates are as in Problem 4.30. What is the value of an FRA where the holder pays LIBOR and receives 7% (semiannually compounded) for a six-month period beginning in 18 months? The...

Q: Use DerivaGem to check that equation (19.4) is

Use DerivaGem to check that equation (19.4) is satisfied for the option considered in Section 19.1. (Note: DerivaGem produces a value of theta ‘‘per calendar day.’’ The theta in equation (19.4) is ‘‘p...