You owe someone £10,000,000 deliverable in 1 year. The current spot is $1.20/£. You have calculated that your profitability breakeven price is $12 million. How can you hedge this exposure using options and ensure that you at least breakeven? A. Sell call options with a strike price = $1.20/£ B. Buy call options with a strike price = $1.20/£ C. Sell put options with a strike price = $1.20/£ D. Buy put options with a strike price = $1.20/£ 0% 0% 0% 09

You owe someone £10,000,000 deliverable in 1 year. The current spot is $1.20/£. You have calculated that your profitability breakeven price is $12 million. How can you hedge this exposure using options and ensure that you at least breakeven? A. Sell call options with a strike price = $1.20/£ B. Buy call options with a strike price = $1.20/£ C. Sell put options with a strike price = $1.20/£ D. Buy put options with a strike price = $1.20/£ 0% 0% 0% 09

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 22P

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You would like to be holding a protective put position on thestock of XYZ Co. to lock in a guaranteed minimum value of $100at year-end. XYZ currently sells for $100. Over the next year, thestock price will increase by 10% or decrease by 10%. The T-billrate is 5%. Unfortunately, no put options are traded on XYZ Co.a. Suppose the desired put option were traded. How muchwould it cost to purchase?b. What would have been the cost of the protective putportfolio?
Let us consider a stock (called "stock A") whose price today is €12. Supposethat in six months' time the price can only go up to €16 or down to €10.Suppose the interest rate is 10% per annum continuously compounded.Let us consider a call option (called "call option B") written on this stock,with maturity date of 6 months and strike price €13.(a) Determine the fair price c for this call option (show all the steps of yourwork).Assume that the seller of call options B starts with zero capital, sells 100call options (each at the fair price c obtained in the previous question), andborrows money to buy A shares of the stock A.(b) How many shares should he buy in order to run no risk at the end of thesix months period?
Suppose you had just gone long (purchased) on lot of Syarikat XYZ stock at a price of RM 15.00 each, for a total investment of RM 15,000. You believe this stock has long term potential but wish to protect yourself from any short-term downside movement in price. Suppose 3-month, at-the-money put options on Syarikat XYZstocks are being quoted at RM 0.15 or 15 sen each or RM 150 per lot (RM 0.15 x 1,000).a. What would be the appropriate options strategy to hedge the long stock position? stocks prices at options maturity in 3-months. c. Draw the payoff profile of combined positions.
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The DB stock currently sells for 185 kr. A one-year put option with strike price200 kr has a premium of 30 kr, and the risk free rate is 15%. What is the priceof a one-year call option with strike price 200 kr if we assume there are notransaction costs and the market is free of arbitrage? DO IT FAST
Suppose you had just gone long (purchased) on lot of Syarikat XYZ stock at a price of RM 15.00 each, for a total investment of RM 15,000. You believe this stock has long term potential but wish to protect yourself from any short-term downside movement in price. Suppose 3-month, at-the-money put options on Syarikat XYZ stocks are being quoted at RM 0.15 or 15 sen each or RM 150 per lot (RM 0.15 x 1,000).a. What would be the appropriate options strategy to hedge the long stockposition? b. Show (in a table) the payoff to the combined position for a given range ofstocks prices at options maturity in 3-months. c. Draw the payoff profile of combined positions.
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