Questions from General Investment

Q: You buy a share of stock, write a 1-year

You buy a share of stock, write a 1-year call option with X = $10, and buy a 1-year put option with X = $10. Your net outlay to establish the entire portfolio is $9.50. (a) What is the payoff of your...

Q: Joe Finance has just purchased a stock index fund, currently selling

Joe Finance has just purchased a stock index fund, currently selling at $2,400 per share. To protect against losses, Joe also purchased an at-the-money European put option on the fund for $120, with e...

Q: Netflux is selling for $100 a share. A Netflux call

Netflux is selling for $100 a share. A Netflux call option with one month until expiration and an exercise price of $105 sells for $2 while a put with the same strike and expiration sells for $6.94. W...

Q: Demonstrate that an at-the-money call option on a

Demonstrate that an at-the-money call option on a given stock must cost more than an at themoney put option on that stock with the same expiration. The stock will pay no dividends until after the expi...

Q: Turn back to Figure 20.1, which lists prices of

Turn back to Figure 20.1, which lists prices of various Microsoft options. Use the data in the figure to calculate the payoff and the profits for investments in each of the following January 18 expira...

Q: Suppose you think AppX stock is going to appreciate substantially in value

Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock’s current price, S0, is $100, and a call option expiring in one year has an...

Q: A 2-year investment of $2,000 results in

A 2-year investment of $2,000 results in a cash flow of $150 at the end of the first year and another cash flow of $150 at the end of the second year, in addition to the return of the original investm...

Q: The common stock of the P.U.T.T

The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You...

Q: Use the Black-Scholes formula to find the value of a

Use the Black-Scholes formula to find the value of a call option on the following stock: Time to expiration……………………………6 months Standard deviation………………………50% per year Exercise price………………………………………….$5...

Q: Find the Black-Scholes value of a put option on the

Find the Black-Scholes value of a put option on the stock in Problem 11 with the same exercise price and expiration as the call option. Data from problem 11: Time to expiration……………………………………6 months...