Position at maturity as a function of the then spot price

Assignment Help Financial Management
Reference no: EM13918846

A trader creates a long strangle with put options with a strike price of $60 per share, and call options with a strike of $70 per share by trading a total of 20 option contracts (10 put contracts and 10 call contracts). Each contract is written on 100 shares of stock. The put option is worth $9 per share, and the call option is worth $7 per share. Derive the profit of this position at maturity as a function of the then spot price.

Reference no: EM13918846

Questions Cloud

The current price of a non-dividend-paying stock : The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $37 or fall to $25. Assume the risk-free rate is zero. An investor sells a call option with a strike price of $31 per share. How would the inv..
What is the percentage change in price of bond : Both bond A and bond B have 6.6 percent coupons and are priced at par value. Bond A has 8 years to maturity, while bond B has 15 years to maturity. a. If interest rates suddenly rise by 1.2 percent, what is the percentage change in price of bond A an..
Opinion regarding the financial statements under examination : The third generally accepted standard of audit fieldwork requires that auditors obtain sufficient, competent audit evidence to afford a reasonable basis for an opinion regarding the financial statements under examination.
The current price of a non-dividend-paying stock : The current price of a non-dividend-paying stock is $41. Over the next year it is expected to rise to $52 or fall to $31. Assume the risk free rate is zero.   An investor buys a put option with a strike price of $41.   How would the investor hedge th..
Position at maturity as a function of the then spot price : A trader creates a long strangle with put options with a strike price of $60 per share, and call options with a strike of $70 per share by trading a total of 20 option contracts (10 put contracts and 10 call contracts). Each contract is written on 10..
Similarities and differences between the bullying cases : Compare at least two (2) similarities and two (2) differences between the bullying cases that take place today with those cases that took place when you attended high school.
What is relationship between creativity, intrapreneurship : What is the relationship between creativity, intrapreneurship, and innovation? Why are these elements vital to building a knowledge creating organization? Describe a company that uses these processes well.
The internal controls of the organization : Why do auditors have to consider the internal controls of the organization? What are some key elements of internal control? Which are the most important? How will the auditor have to modify the audit program if the internal controls are deemed ina..
Determine the after closing balance in the retained earning : Baker Company's accounting records show a $42,100 balance in its Retained Earnings account on January 1, 2013.

Reviews

Write a Review

Financial Management Questions & Answers

  What is the expected return on the mutual fund

Consider the following capital market: a risk-free asset yielding 0.75% per year and a mutual fund consisting of 70% stocks and 30% bonds. The expected return on stocks is 10.75% per year and the expected return on bonds is 3.25% per year. The standa..

  Emergence of enterprise resource planning technology

Is the following statement true? The emergence of enterprise resource planning technology is essential to large multinational corporations and to the continued development of international business. Explain your response and give an appropriate examp..

  Decide between two different conveyor belt systems

Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $240,000, has a four-year life, and requires $75,000 in pre tax annual operating costs. System B costs $340,000, has a six-year lif..

  The investment timing decision relates

The investment timing decision relates to:

  The certainty equivalent method

The certainty equivalent method:

  What is the required return on the companys stock

Bruer, Inc., is expected to maintain a constant 5.30 percent growth rate in its dividends, indefinitely. Required: If the company has a dividend yield of 3.80 percent, what is the required return on the company’s stock?

  Difference between open-end mutual fund and closed-end fund

What is the difference between an open-end mutual fund and a closed-end fund? What is the difference between an open-end mutual fund and a unit investment trust?

  What is the amount of the companys accounts receivable

Size of Accounts Receivable. Essence of Skunk Fragrances, Ltd., sells 6,500 units of its perfume collection each year at a price per unit of $270. All sales are on credit with terms of 1/10, net 30. The discount is taken by 40 percent of the customer..

  The risk-return trade off that investors face on day-to-day

The risk-return trade off that investors face on a day-to-day basis is based on realized rates of return because expected returns involve too much uncertainty.

  Calculate expected rate on five year treasury bond purchased

The Wall Street Journal reports that the current rate on 5-year Treasury bonds is 2.85 percent and on 10-year Treasury bonds is 5.35 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 5-year Treasury bond purchas..

  Compute the fair value of two nearest to expiration futures

Compute the ‘fair’ value of the two nearest to expiration futures contracts on the S&P500 Index (SPX) using SPX as the underlying asset. Did the futures contract settle above or below SPX?

  Tax rate schedule-how much gain is included in gross income

Scot and Vidia, married taxpayers, earn $184,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. (Use the U.S. tax rate schedule). This year, Fred and Wilma sold their home (sales price $750,000; cost $200,000). Al..

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