User Account

All Pages

What is the net profit for the put option writer

Assignment Help Finance Basics
Reference no: EM13984955

1. Consider two periods: The period before expiration (denoted by "Period 0") and expiration period ("Period T"). You purchased an option with the strike price of $20. The spot price was $20. Assume that the spot price (the price of underlying asset) remained the same as $20 at period 0 and T. Which of the following is true?

A. The option price at 0 is higher than the price of the option at T.

B. The option price at 0 is less than the price of the option at T.

C. The option price at 0 is equal to the price of the option at T.

D. Cannot determine whether how the option price changes.

2. Which of the following is not always true about option exercise?

a. Exercise if gross profit > 0.

b. Exercise if net profit > 0.

c. Exercise if gross profit > 0 even thought net profit < 0.

d. No exercise if net profit < 0.

3. A trader buys 100 European call option contracts with a strike price of $20 and a time to maturity of one year. The size per one contract is 4. The cost of each option is $2. The price of he underlying asset proves to be $25 in one year. What is the net profit when exercised at expiration?

A. $800 <= NP < $1100

B. $1100 <= NP < $1400

C. NP < $500

D. $1400 <= NP

E. $500 <= NP < $800

4. A trader issues (writes) 10 European put option contracts with a strike price of $50 and a time to maturity of six months. The price received for each put option is $4. The price of the underlying asset is $41 in six months. The contract size of the option is 50. What is the net profit for the put option writer at expiration?

a. -$2000 <= NP < -$1000

b. -$1000 <= NP < 0

c. 0 <= NP

d. NP < -$3000

e. -$3000 <= NP < -$2000

5. GS, Inc. stock is selling for $28 a share. A 3-month call on GS stock with a strike price of $30 is priced at $1.50. Risk-free assets are currently returning 0.3% per month. What is the price of a 3-month put on GS stock with a strike price of $30? : (Hint: use the Put-call parity)

A. $2.73

B. $3.23

C. $0.50

D. $4.02

E. $2.02

6. Given an exercise price, time to maturity, and European put-call parity, the present value of the strike price plus the call option is equal to:

a. the share of stock plus the put option

b. the value of a U.S. Treasury bill

c. the current market value of the stock.

d. a put option minus the market value of the share of stock.

e. the present value of the stock minus a put option.

7. Assume the price of the underlying stock decreases. How will the values of the options respond to this change?

I. strike price

II. time to maturity

III. standard deviation of the returns on a risk-free asset

IV. risk-free rate

A. I and IV only

B. II and III only

C. II and IV only

D. I and III only

E. I only

8. For a non-dividend paying stock, it is better to sell than to exercise an American call option.

A. Yes, only if the bid price is higher than the intrinsic value for a market order

B. Yes, only if the ask price is higher than the intrinsic value for a market order

C. Yes, only if the bid price is lower than the intrinsic value for a market order

D. Yes, always whether it is a limit or a market order

E. No, always whether it is a limit or a market order

Verified Expert

This assignment is based on the concepts of basic finance. It includes the multiple choice question from the period before expiration, gross and net profit, strike price, sale price, put option, call option, Put-Call parity option. Also, it includes the standard deviation, non-dividend paying stock etc.

Reference no: EM13984955

Questions Cloud

Define price elasticity of demand : Price elasticity of demand tells us more about the consumers' purchases than the law of demand. Define price elasticity of demand. How does it differ from the law of demand? Explain why we need to calculate the absolute value of elasticity of demand.
What factors could have contributed t : What factors could have contributed to your experimental value being different from the actual value?
Price elasticity of demand is just a number : Price elasticity of demand is just a number. Economists may not necessarily be interested in the size of this number, but whether its absolute value is greater than, less than or equal to one. Comment on this statement. Explain whether commodities th..
The freezing point depression : Does the amount of solute used affect the freezing point depression?
What is the net profit for the put option writer : Consider two periods: The period before expiration (denoted by "Period 0") and expiration period ("Period T"). You purchased an option with the strike price of $20. The spot price was $20. Assume that the spot price (the price of underlying asset)..
Explain the difference between point and arc estimates : Define elasticity of demand and explain the difference between point and arc estimates. Why are some commodities classified as elastic while others are termed inelastic? Explain why elasticity of demand for a particular commodity will be greater:
Demand for insulin is almost completely price inelastic : A diabetic's demand for insulin is almost completely price inelastic. Draw a set of indifference curves and an appropriate budget constraint that would generate such a demand curve.
When the price of an inferior good declines : When the price of an inferior good declines, does the substitution effect tend to increase or decrease the quantity purchased of that good? Explain and show graphically.
Consumer maximizes utility by selecting a bundle of two good : The consumer maximizes utility by selecting a bundle of two goods (x and y) that will give the highest level of satisfaction. Show, using indifference curves and a budget constraint the bundle that will maximize utility and explain why that particula..

Reviews

inf984955

12/28/2017 4:40:28 AM

Expertsmind.Com has set great measures for task. Task prepared by you teaches me much about subject and additionally about task. I am awed your services.

Write a Review

Finance Basics Questions & Answers

  Costs result from production of defective parts

Not only customers, but stockholders, suppliers, and others, are among the _________ whose values must be protected in making ethical decisions concerning the quality of products.

  Risk managers use a number of methods for managing risk

Risk managers use a number of methods for managing risk

  Derive the costs and depreciation

Multiply a few of the given inputs on the spreadsheet to come up with some of the formula inputs from the text. For the Sales (first part of the formula), you need to multiply Cell B60 (# of Souffles produced per year) by B62 (Price of each Souffle) ..

  Erin griff manager of the cal division of the n corp is

erin griff manager of the cal division of the n corp is trying to decide whether to launch a new model of blender

  What is the implied annual rate of interest

If you can double your money in 9 years, what is the implied annual rate of interest, given that compounded semi-annually? Note: give your answer in percentages. Note: Do not put % sign in your answer. Simply write the number in percentages in the..

  Compare the market capitalization to revenue ratio

American Airlines had a market capitalization of $2.3 billion, debt of $14.3 billion, and cash of $3.1 billion. American Airlines had revenues of $18.9 billion.

  Write a script to describe capital budgeting considerations

The other must be qualitative (non-numeric). Write a script to describe capital budgeting considerations that you think are important for managers to consider

  Calculation of project ocf

Calculation of Project OCF and Project NPV and Project Cash Flow from Assets and Modified ACRS. and What is the project's year 0 net cash flow

  The listing agreement defines the relationship between

The primary function of the real estate brokerage industry is to

  Change and management styles

Think about two (2) organizations for which you have worked or were associated, or two (2) in which you are interested, or two (2) with which you are familiar. Analyze their organizational culture. Describe the significant differences in your leaders..

  What percentage of company will be owned by new investors

If the underwriter charges 5% of gross proceeds, and all the shares are primary shares sold to new investors, what percentage of the company will be owned by the new investors?

  Estimate the trend component of monthly demand

A manager of a store that sells and installs spas wants to prepare a forecast for January, February, and March of next year. Her forecasts are a combination of trend and seasonality. She uses the following equation to estimate the trend component ..

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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