User Account

All Pages

Butterfly spread at maturity as function of then stock price

Assignment Help Financial Management
Reference no: EM131346545

1. A trader creates a long butterfly spread from options with strike prices of $60, $65, and $70 per share by trading a total of 40 option contracts (10 contracts at $60, 20 contracts at $65 and 10 contracts at $70). Each contract is written on 100 shares of stock. The options are worth $10, $12, and $15 per share of stock.

A. What is the value of the butterfly spread at maturity as a function of the then stock price?

B. What is the profit of the butterfly spread at maturity as a function of the then stock price?

2. 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.

A. What is the value of the strangle at maturity as a function of the then stock price?

B. What is the profit of the strangle at maturity as a function of the then stock price?

Reference no: EM131346545

Questions Cloud

What is present worth for the optimum investment portfolio : This problem has been submitted once already but the solution did not provide me any feedback to my how the calulations are made. I am looking to uncover how the present worth of each investment option was solved for? Which alternatives should Polari..
What would cost of equity be if the debt-equity ratio : Crosby Industries has a debt-equity ratio of 1.5. Its WACC is 8.5 percent, and its cost of debt is 6 percent. There is no corporate tax. What is Crosby’s cost of equity capital? What would the cost of equity be if the debt-equity ratio were 0.5?
Value of the firm be if the company takes on debt equal : Letang Corporation expects an EBIT of $24,000 every year forever. The company currently has no debt, and its cost of equity is 14.5 percent. The company can borrow at 9 percent and the corporate tax rate is 38. What is the current value of the compan..
Different capital structure-levered plan and all-equity plan : Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 735,000 shares of stock outstanding. What is the break-even EBIT?
Butterfly spread at maturity as function of then stock price : A trader creates a long butterfly spread from options with strike prices of $60, $65, and $70 per share by trading a total of 40 option contracts. What is the value of the butterfly spread at maturity as a function of the then stock price? What is th..
The current price of a non-dividend paying stock : The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European call option on the stock with a strike price of $30 that expires in 6 months. Each step is 3 months, the risk free rate is 5% per annum with continuous c..
What would be the effective rate of interest on the loan : You are thinking about buying a car, and a local bank is willing to lend you $20,000 to buy the car. Under the term of the loan, it will be fully amortized over 5 years (60 months), and the nominal rate of interest will be 12 percent, with interest p..
Loan amortization-interest was included in first payment : Jan sold her house on December 31 and took a $25,000 mortgage as part of the payment. The 10-year mortgage has a 8% nominal interest rate, but it calls for semiannual payments beginning next June 30. How much interest was included in the first paymen..
Value the option at time zero using the binomial tree : Consider a six month American put option on 500 ounces of gold with a strike of $1300 per ounce. The spot price per ounce of gold is $1300 and the annual financing rate is 2% on a continuously compounded basis.  Compute u, d, as well as p for the sta..

Reviews

Write a Review

Financial Management Questions & Answers

  The estimated salvage value

A lumber company purchases and installs a wood chipper for $84369. The chipper is classified as a MACRS 7-year property. Its useful life is 9 years. The estimated salvage value at the end of 9 years is $18738. Using straight-line depreciation, the th..

  Determine whether the investment plan is viable or not

A corporation plans to invest in a small project which costs a cone-time expenditure of $600,000 at year 0 and offers an annual return of $160,000 each in the next five years. It intends to finance this project by borrowing from a local bank which re..

  Annual compounding for amortization schedule of mortgage

A family currently live in an apartment whose monthly rent is $950. They are thinking of buying a house which would cost $220,000. They plan to live in this house for 5 years and sell it at the end of the 5th year. Calculate the rent saved during yea..

  Risk-free asset and one risky stock in her portfolio

Susan has one risk-free asset and one risky stock in her portfolio. The risk-free asset has an expected return of 4.8 percent. The risky asset has a beta of 1.2 and an expected return of 13.8 percent. What is the expected return on the portfolio if t..

  Compute the value of stock with required return

A firm is expected to pay a dividend of $3.05 next year and $3.35 the following year. Financial analysts believe the stock will be at their price target of $120 in two years. Compute the value of this stock with a required return of 13.3 percent.

  What is your best estimate of CDBs cost of equity

Stock in CDB Industries has a beta of 1.06. The market risk premium is 7.1 percent, and T-bills are currently yielding 4.1 percent. CDB’s most recent dividend was $3.00 per share, and dividends are expected to grow at a 5.1 percent annual rate indefi..

  What is value per share utilizing the option-pricing model

You are now becoming an expert at valuating companies. You have been consulted to value a technology company whose enterprise value is $800 million. There company does not have any debt owed to businesses. What is the company’s equity value? What is ..

  What is initial cost of project including flotation costs

Rodney Ruxin's Legal Services is raising capital to open a new law office in southern California. The project has an initial start up cost of $752,995. The firm maintains a debt-equity ratio of 0.50 and has a flotation cost of debt of 6.8 percent and..

  Nontraditional health services

Let’s assume you are charged with opening a new women’s health center in downtown Washington DC. located near the White House. The center will offer a full spectrum of health services for women from preventative health services, nontraditional health..

  What is the firms equity multiplier

Gardial & Son has an ROA of 10%, a 5% profit margin, and a return on equity equal to 17%. What is the company's total assets turnover? Round your answer to two decimal places. What is the firm's equity multiplier?

  Retained earnings-accounts payable-cost of goods sold

A company took delivery of $50,000 of new inventory and agreed to pay cash to the supplier within 30 days. Which of the following items would be increased by this inventory purchase transaction? (check all that apply) 1) Accounts Receivable 2) Retain..

  What is the pretax required return on stock

The Gecko Company and the Gordon Company are two firms whose business risk is the same but that have different dividend policies. Gecko pays no dividend, whereas Gordon has an expected dividend yield of 4 percent. Suppose the capital gains tax rate i..

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