What should the strike price of the put options be

Assignment Help Financial Management
Reference no: EM13950349

A portfolio manager in charge of a portfolio worth $8 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below $7 million. The S&P 100 index is currently valued at 400 and each contract is on 100 times the index.

1. If the portfolio has a beta of 1, how many put option contracts should be purchased?

2. If the portfolio has a beta of 1, what should the strike price of the put options be?

3. If the portfolio has a beta of 0.5, how many put options should be purchased?

Show work.

Reference no: EM13950349

Questions Cloud

Type of common stocks and one type of bond outstanding : Cooper has one type of common stocks and one type of bond outstanding. The total book value for the common stocks is $10million and the book value per share is $2million. The expected market premium is 12% and the current risk rate is 3%. Cooper equi..
Mass flow rates of the two streams : Determine (a) the ratio of the mass flow rates of the two streams and (b) the rate of exergy destruction, in Btu per lb of steam entering the heat exchanger.
Should you increase or decrease production : What decisions will you make regarding production levels and pricing for your production facility based ONLY on this change (ignore the changes discussed in part a)? Should you increase or decrease production? Should you increase or decrease price..
Describe your favorite program and why you enjoy it : Narrative reconstruction: describe your favorite program and why you enjoy it? When did you watch it, where, and why
What should the strike price of the put options be : A portfolio manager in charge of a portfolio worth $8 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below $7 mill..
Determine the rate of heat transfer : For the Refrigerant 134a stream, determine the rate of heat transfer, in kJ/h. For each of the streams, evaluate the change in flow exergy rate, in kJ/h, and interpret its value and sign.
Calculate the price of the put option : Calculate the price of a three-month European put option on a stock with a strike price of $60 when the current stock price is $60, a dividend of $1.50 is expected in two months, the risk-free interest rate is 10% per annum, and the volatility is 30%..
Determine the rate of exergy destruction : Consider the parallel flow heat exchanger of Prob. 4.86. Verify that the stream of air exits at 780°R and the stream of carbon dioxide exits at 760°R. Pressure is constant for each stream. For the heat exchanger, determine the rate of exergy destr..
Design and manufacture of composite bmx bottom bracket : The design and manufacture of composite BMX bottom bracket - Example of different types or carbon fibre hollow components

Reviews

Write a Review

Financial Management Questions & Answers

  Based solely on the internal rate of return rule

You are considering an investment that costs $152,000 and has projected cash flows of $71,800, $86,900, and -$11,200 for years 1 to 3, respectively. If the required rate of return is 15.5 percent, should you accept the investment based solely on the ..

  What is the firms earnings growth rate

The newspaper reported last week that Bennington Enterprises earned $34.02 million this year. The report also stated that the firm’s return on equity is 14 percent. Bennington retains 70 percent of its earnings. What is the firm's earnings growth rat..

  The economic order quantity model

Company sells 2,391 chairs a year at an average price per chair of $170. The carrying cost per unit is $30.15. The company orders 499 chairs at a time and has a fixed order cost of $92 per order. The chairs are sold out before they are restocked. How..

  Determinants of interest rate for individual securities

Determinants of Interest Rate for Individual Securities A particular security's default risk premium is 4.90 percent. For all securities, the inflation risk premium is 3.65 percent and the real interest rate is 3.70 percent. The security's liquidity ..

  Balances assets with their sources of debt-equity financing

A balance sheet balances assets with their sources of debt and equity financing. If a corporation has assets equal to $6,900,000 and a debt ratio of 73%, how much debt does the corporation have on its books?

  Beginning to plan college savings accounts

Susan is beginning to plan college savings accounts for her two children. Her son Bobby is 8 and will begin college in 10 years when he turns 18. Her daughter Mallory is 2 and will begin college in 16 years when she is 18.

  Stock price six months from the expiration of an option

Use Black Scholes to Value the put and call given the following criteria. The stock price six months from the expiration of an option is $13.50, the exercise price of the option is $13, the risk free interest rate is 10 percent per annum, and the vol..

  Comparing two different capital structures

Sanborn Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $80,000 in debt. Plan II would result in 7,500 shares of stock and $120,000 in debt. The interest rate on the debt is 8 percent.

  Use debt or equity financing to raise the additinal funds

Piper Pickle Company is a major packer of pickles and pickled products (horseradish, pickled watermelon rinds, relishes, and peppers). The company’s stock is widely held, actively traded, and listed on the New York Stock Exchange. This vertical integ..

  Yankee inc a us based mnc has recently decided to expand

yankee inc. a u.s. based mnc has recently decided to expand its international trade relationship by exporting to

  What is the average accounts receivable figure

Skye Flyer, Inc., has weekly credit sales of $18,600, and the average collection period is 28 days. What is the average accounts receivable figure?

  Find the yield rate minglu earned on her investment

Stephen borrows $1000 at 5% for 20 years from Minglu. After 10 years, Minglu sells the rights to future payments to Aipeng for $P. Find P, if Aipeng plans to accumulate a sinking fund at 4% to replace P and desires a yield of 6%. Find the yield rate ..

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