1 suppose that there are two calls on the same stock one

Assignment Help Financial Management
Reference no: EM13381881

1. Suppose that there are two calls on the same stock: one with exercise price K of $30, the other $35. The market value of the call with K= $30 is $2 while that for call with K=$35 is $1.5. What positions you need to take in each of the options to create a bullish call spread? Bearish call spread? Describe the payoffs at various stock prices with a set of equations or table, for each strategy. Show all work.

2. On November 21, 2007, Citigroup (C) stock was trading around $30 a share. Its January call with exercise price of $27.5traded for $4. The risk-free rate was 4%. Compute the theoretical option values at standard deviations of returns at

(a) 20%

(b) 40%

(c) 60%.Which is the above is closest to its implied volatility? What does implied volatility reflect?

3. A stock price is currently $42. Its stock price will be either $45 or $38 one year from now. The risk-free rate is 5%. A one-year call on the stock has an exercise price of $40.

(a) What are its intrinsic values at stock prices of $45 and $38, respectively?

(b) What should be the hedge ratio?

(c) What should be the value of the hedged portfolio at expiration?

(d) What is the value of the call today?

(e) Verify your answer using the risk-neutral approach-do not just say that you have the same answer; you will need to show the work that the two approaches give the same answer.

4. Suppose that an investor holds $4,000 option that has delta of 0.6 and vega of 1.4. The investor wants to make his portfolio both delta and vega neutral. Suppose that he wants to use another option to achieve the objectives and suppose that this option has a delta of 0.9 and vega of 1. What is the required position (a complete answer requires a dollar amount and specifying long or short) in this option and in futures?

Reference no: EM13381881

Questions Cloud

1you are a venture capitalistyou are estimating a new : 1you are a venture capitalist.you are estimating a new project will have a beta of 5.what is your required return using
Two questions1find an example when an organisation took up : two questions1find an example when an organisation took up too much risk and was unable to cope with it. give a short
Two questions1find an example when an organisation took up : two questions1find an example when an organisation took up too much risk and was unable to cope with it. give a short
Identify a risky and a safe investment and provide : identify a risky and a safe investment and provide rationale to justify your choices. also discuss the trade-off of
1 suppose that there are two calls on the same stock one : 1. suppose that there are two calls on the same stock one with exercise price k of 30 the other 35. the market value
Problems1 dive pharmaceuticals has ebit of 485 million in : problems1 dive pharmaceuticals has ebit of 485 million in 2013. in addition viking has interest expenses of 190 million
As an organizational leader investing your companys cash : as an organizational leader investing your companys cash would you choose stocks bonds or derivatives for investment
Since its inception eco plastics company has been : since its inception eco plastics company has been revolutionizing plastic and trying to do its part to save the
Find the value per share of the companyscommon stock the : find the value per share of the companyscommon stock the company had paid out a total of 1500000 in dividends the

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd