TDX stock is currently trading at $100. A 3-month call option in this stock has an exercise price of $105 and trading at $1 (the option premium). A put option with similar maturity period and strike price is trading at $0.5. i) Compute the theoretical value of call and put options if TDX stock price at the end of 3 months will be $95, or $100, or $105, or $110, or $115. ii) Draw diagrams showing TDX stock price and theoretical values of call and put. iii) If you purchase one stock and one put option today, what will be the total value of your portfolio at the end of 3 months? iv) Compute your return on investment or holding period return made in part (iii) above.

TDX stock is currently trading at $100. A 3-month call option in this stock has an exercise price of $105 and trading at $1 (the option premium). A put option with similar maturity period and strike price is trading at $0.5. i) Compute the theoretical value of call and put options if TDX stock price at the end of 3 months will be $95, or $100, or $105, or $110, or $115. ii) Draw diagrams showing TDX stock price and theoretical values of call and put. iii) If you purchase one stock and one put option today, what will be the total value of your portfolio at the end of 3 months? iv) Compute your return on investment or holding period return made in part (iii) above.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 2P

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