Disregarding option premium

Assignment Help Business Economics
Reference no: EM13840156

Consider options on Microsoft stock. Suppose that there are call options with a strike price of $10 and put options with a strike price of $10, both with the expirations date of January 16th. Suppose that there is a 50% chance that the stock price will be $13 on January 16 (scenario A) and another 50% change that it will be $9 on January 16th (Scenario B). Answer the following:

A) Compute the gross profit (ie disregarding option premium) of the call option and of the put option on January 16th under scenario A

B) Do the same for scenario B

Reference no: EM13840156

Questions Cloud

What is the weekly marginal product of practical nurse : The consultants of Allcare Family Clinic (AFC) have determined that if the clinic hires two more practical nurses, without any other changes in its operation, it can increase the number of patients it treats during a week from 200 to 220. The weekly ..
Advised to pay for anyone to get a vaccination : Measles has become an epidemic here in Orange County. About 1 in 1000 people will die after contracting the disease. Because this is such a high rate, health officials in Orange County would be well advised to pay for anyone to get a vaccination.
What is their short run optimal input combination : Suppose production function for noodle soup at Slurping Turtle is Q =4k^1/2 L^1/2. They currently own 4 units of capital and are not able to change this during the short run. The rental rate of capital is $10 and the wage rate is $20. Suppose Slurpin..
Cost function have increasing or decreasing returns to scale : Suppose the production function for oranges is Q = k^1/3 L^1/3. Suppose the production function for pasta is Q = 4kl. What is the long-run optimal input combination when Q = 16 , r = 4, and w = 36 ? Does this cost function have increasing or decreasi..
Disregarding option premium : Consider options on Microsoft stock. Suppose that there are call options with a strike price of $10 and put options with a strike price of $10, both with the expirations date of January 16th. Compute the gross profit (ie disregarding option premium) ..
Existing-potential entrants face decreasing industry costs : If all firms, existing and potential new entrants face decreasing industry costs in the long run under perfect competition, the industry supply curve will:
Calculate the market price of the bond : A $10,000 par value bond with coupons at 8%, convertible semi annually, is being sold three years and four months before the bond matures. The bond is redeemable at $C, and purchase will yield 6% convertible semi annually to the buyer. The price of t..
Monetary base and the level of reserves : Explain and illustrate graphically the effect of the following on the monetary base and the level of reserves. The Fed lends the Bank of America additional $20 million but depositors withdraw $5million. Central bank purchases $30 million of governmen..
Is the bank rate sensitivity gap positive or negative : Suppose you are the manager of the bank that has $15 million of fixed-rate assets, $30 million of interest rate- sensitive assets, $20 million of rate-fixed liabilities and $20 million of interest rate -sensitive liabilities. Is the bank rate sensiti..

Reviews

Write a Review

Business Economics Questions & Answers

  Explain condition under which frank and mike wont make trade

Suppose that Frank is considering giving Mike eight paper back books in exchange for 2 CDs. Explain the conditions under which this trade would be mutually beneficial. Also explain the conditions under which Frank and Mike won't make the trade.

  What impact do you think this new contract will have

According to the terms of the contract, the pilots will receive options to buy 14 million shares of the firm's stock over the next 10 years. What impact do you think this new contract will have on Southwest Airlines?

  Along a short-run aggregate supply curve

Along a short-run aggregate supply curve, a decrease in the price level means that

  When companies expand into the international arena

When companies expand into the international arena, they do so either because their home market has matured or because they see real opportunities in the foreign market. Discuss which kinds of international strategies are most appropriate for compani..

  Pure competition or monopoly or monopolistic or oligopoly

Select an industry or firm and state what is the market structure (pure competition, or monopoly, or monopolistic, or oligopoly).Define the characteristics of the industry or firm to support your selection of a market structure.

  Such a price restriction

How would a law preventing landlords from charging above $900 give different results. What is such a price restriction called.

  How are the forecasts likely to be inaccurate

How are the forecasts likely to be inaccurate? What do you think is driving inaccuracy? How might this problem be solved?

  Using regression to combine forecast

When using regression to combine forecast of the same Y variable derived in with various methods how do you determine the best forecasts to include in the model?

  Supply curves are positively-sloped

What phrase best describes medical care spending in the United States? Which of the following will not change the demand for office visits to the physician? The dead-weight loss from an excise tax. Supply curves are positively-sloped because of

  Focus entirely on targeting the inflation rate

The operating instructions issued to the European Central Bank is to use monetary policy to focus entirely on targeting the inflation rate. If it follows those rules what would it’s Taylor rule equation look like? Be specific.

  Would you promote saudi women as managers in the mnc

Indicate three possible adjustments that you would make in order to function as a MNC manager in Saudi Arabia. Indicate one adjustment that you would not be able to make. Would you promote Saudi women as managers in your MNC.

  What combination of monetary and fiscal policy should choose

what combination of monetary and fiscal policy should they choose? Use a graph, and be sure to identify the effects of each policy.

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