A call option contract has a strike rate of $1.820/£ and a premium of $0.08. The spot rate on maturity is $1.920/£. Which one of the following is the gain (or) loss to the buyer of the call option? a. The buyer exercise the option and gain is $0.10/£ b. The buyer not exercise the option and loss is $0.08/£ c. The buyer exercise the option and gain is $0.02/£ d. None of the options

A call option contract has a strike rate of $1.820/£ and a premium of $0.08. The spot rate on maturity is $1.920/£. Which one of the following is the gain (or) loss to the buyer of the call option? a. The buyer exercise the option and gain is $0.10/£ b. The buyer not exercise the option and loss is $0.08/£ c. The buyer exercise the option and gain is $0.02/£ d. None of the options

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter18: Derivatives And Risk Management

Section18.A: Valuation Of Put Options

Problem 1P

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2) You enter into a ‘Call’ Option contract with a strike price of $20. This contract will expire in 31st of March 2021. On 31st of March, you realise that the underlying share price is $28 . a. Will you exercise this contract? Why or why not? b. Is this contract ‘In-the-Money’ or ‘Out-Of-the-Money’?
42-An American importer imported the goods from the UK for £62,500 and fears an appreciation in Pound and purchased a call option. Options are available at a strike price of $1.830/£ with a premium of $0.03/£. The spot rate on maturity rises to $1.930/£. Which one of the following is the gain (or) loss to the buyer of the call option? O a. Call option gives loss $4,375 to the importer O b. Call option gives gain $3,475 to the importer O c. None of the options O d. Call option gives gain $4,375 to the importer
28-An American importer imported the goods from the UK for £62,500 and fears an appreciation in Pound and purchased a call option. Options are available at a strike price of $1.930/£ with a premium of $0.03/£. The spot rate on the maturity date is $1.830/£. Which one of the following is the gain (or) loss to the buyer of the call option? O a. None of the options O b. Call option gives gain $0.070/£ to the importer O c. Call option gives loss $0.03/£ to the importer O d. Call option gives gain $0.03/£ to the importer
8. An investor sells a futures contract an asset when the futures price is $1,500. Each contract is on 100 units of the asset. The contract is closed out when the futures price is $1,540. Which of the following is true A. The investor has made a gain of $4,000 B. The investor has made a loss of $4,000 C. The investor has made a gain of $2,000 D. The investor has made a loss of $2,000
20. A futures contract a. is an agreement to buy or sell a specified amount of an asset at the spot price on the expiration date of the contract. b. is an agreement to buy or sell a specified amount of an asset at a predetermined price on the epiration date of the contract. c. gives the buyer the right,, but not the obligation, to buy an asset some time in the future. d. is a contract to be signed in the futurue by the buyer and the seller of the commodity e. none of these.
12. A chooser option expires in 6 months, but the owner must make the choice in 4 months. The strike price is $27 and the underlying asset is currently worth $25.88. A call option that expires in 6 months (same underlying asset, strike price = $27) has a premium of $4.63 and an identical put has a premium of $4.99. An otherwise identical call that expires in 4 months costs $3.69 and its put option counterpart costs $4.30. What should be the premium for this chooser option?
12 An investor enters a three-year swap contracts by paying fixed price and receive spot price of Apple’s stock at the end of each year. The spot price of Apple’s stock is $515 now, and the risk-free rate is 3%. Draw the synthetic forwards contracts to mimicking this swap contract. Compute the rational fixed price based on arbitrage-free principal.
9. An investor buys a futures contract an asset when the futures price is $1,500. Each contract is on 100 units of the asset. The contract is closed out when the futures price is $1,540. Which of the following is true A. The investor has made a gain of $4,000 B. The investor has made a loss of $4,000 C. The investor has made a gain of $2,000 D. The investor has made a loss of $2,000
43-A forex dealer quotes a price of $1.340 – $1.345 = £1. In this quote, the higher price denotes which one of the following? O a. The higher rate 1.345 is the rate at which the dealer will buy £ O b. The higher rate 1.345 is the rate at which the dealer will buy and sell $ O c. The higher rate 1.345 is the rate at which the dealer will sell £ O d. None of the options
Question 7 A. What is the basic difference between a forward contract and a futures contract? How important is this difference in determining the contract prices? B. Is the “forward price” the same thing as the “value of the forward contract” Explain. C. A forward contract exists for a unit of two-year government securities with delivery to take place three years from now. Suppose the price of these securities three years from now is uniformly distributed from a low $800 to a high of $1,400. The one-year expected riskless rate of interest is 5 percent for all periods under consideration. (i). If investors are risk neutral, what should be the current forward price? (ii). Suppose now that investors are risk averse and that the forward price is $1,200. What do you know about the relationship between the market value of two-year government securities and overall consumption? (iii). Continue to assume (as in (ii)) that the current forward price (at time 0) is $1,200. One year from now (at…
20-A forex dealer quotes a price of $1.340 $1.345 = £1. In this quote, the lower price denotes which one of the following? a. The lower rate 1.340 is the rate at which the dealer will sell £ b. The lower rate 1.340 is the rate at which the dealer will buy and sell $ c. The lower rate 1.340 is the rate at which the dealer will buy £ d. None of the options
1. If the contract at inception is $20 for a future expiring in 1 year and the current contract is 22 what is the inplied future value with rf rate of 5%? answers: A) 1.95 B) 2 C) 1.87 D) none of above 2. you have an option that pays 1 if the stock price = or above 10 and 0. If the cureent stock price is 7 and movements are to 14 and 3.5 what is the value of this option assuming expiry in 1 year and interest rate of 5% answers: A) .349 B) .356 C) .362 D) none of the above