A stock is trading at $69. You believe there is a 60% chance the price of the stock will increase by 20% overthe next 3 months. You believe there is a 10% chance the stock will drop by 5%, and you think there is only a30% chance of a major drop in price of 60%. At-the-money 3-month puts are available at a cost of $840 percontract. What is the expected dollar profit for a writer of a naked put at the end of 3 months?Multiple Choice$3,300-$436.50$495$0

Information Provided: Stock price = $69 Cost of contract = $840

A stock is trading at $69. You believe there is a 60% chance the price of the stock will increase by 20% over the next 3 months. You believe there is a 10% chance the stock will drop by 5%, and you think there is only 30% chance of a major drop in price of 60%. At-the-money 3-month puts are available at a cost of $840 per contract. What is the expected dollar profit for a writer of a naked put at the end of 3 months?

A stock is trading at $69. You believe there is a 60% chance the price of the stock will increase by 20% over the next 3 months. You believe there is a 10% chance the stock will drop by 5%, and you think there is only 30% chance of a major drop in price of 60%. At-the-money 3-month puts are available at a cost of $840 per contract. What is the expected dollar profit for a writer of a naked put at the end of 3 months?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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A stock is trading at $70. You believe there is a 70% chance the price of the stock will increase by 10% over the next 3 months. You believe there is a 10% chance the stock will drop by 10%, and you think there is only a 20% chance of a major drop in price of 40%. At-the-money 3-month puts are available at a cost of $850 per contract. What is the expected dollar profit for a writer of a naked put at the end of 3 months?
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