Q: FX Bank has succeeded in hiring ace foreign exchange trader Lucinda Cable
FX Bank has succeeded in hiring ace foreign exchange trader Lucinda Cable. Her remuneration package reportedly includes an annual bonus of 20% of the profits that she generates in excess of $100 milli...
See AnswerQ: A European call and put option have the same maturity and both
A European call and put option have the same maturity and both are at the money. The stock does not pay a dividend. Which option should sell for the higher price? Explain.
See AnswerQ: Suppose that Mr. Colleoni borrows the present value of $100
Suppose that Mr. Colleoni borrows the present value of $100, buys a six month put option on stock Y with an exercise price of $150, and sells a six-month put option on Y with an exercise price of $50....
See AnswerQ: a. If you can’t sell a share short, you can
a. If you can’t sell a share short, you can achieve exactly the same final payoff by a combination of options and borrowing or lending. What is this combination? b. Now work out the mixture of stock a...
See AnswerQ: The common stock of Triangular File Company is selling at $90
The common stock of Triangular File Company is selling at $90. A 26-week call option written on Triangular File’s stock is selling for $8. The call’s exercise price is $100. The risk-free interest rat...
See AnswerQ: Is it more valuable to own an option to buy a portfolio
Is it more valuable to own an option to buy a portfolio of stocks or to own a portfolio of options to buy each of the individual stocks? Say briefly why.
See AnswerQ: In December 2014, a 13-month call on the stock
In December 2014, a 13-month call on the stock of Amazon.com, with an exercise price of $305, sold for $42.50. The stock price was $305. The risk-free interest rate was 1%. How much would you be willi...
See AnswerQ: Table 20.4 lists some prices of options on common stocks
Table 20.4 lists some prices of options on common stocks (prices are quoted to the nearest dollar). The interest rate is 10% a year. Can you spot any mispricing? What would you do to take advantage of...
See AnswerQ: Figure 20.14 shows some complicated position diagrams. Work out
Figure 20.14 shows some complicated position diagrams. Work out the combination of stocks, bonds, and options that produces each of these positions.
See AnswerQ: Some years ago the Australian firm Bond Corporation sold a share in
Some years ago the Australian firm Bond Corporation sold a share in some land that it owned near Rome for $110 million and as a result boosted its annual earnings by $74 million. A television program...
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