a) An investor has a long call option on the market index at a strike price of $930. At expiration the index price is $920. Explain the profit and loss. b) The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. Draw the payoff graph for the long put position at expiration. Include strike price, breakeven price, and max loss.
a) An investor has a long call option on the market index at a strike price of $930. At expiration the index price is $920. Explain the profit and loss. b) The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. Draw the payoff graph for the long put position at expiration. Include strike price, breakeven price, and max loss.
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 2P
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a) An investor has a long call option on the market index at a strike price of $930. At expiration the index price is $920. Explain the profit and loss.
b) The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. Draw the payoff graph for the long put position at expiration. Include strike price, breakeven price, and max loss.
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