CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 2819440196246
Author: Bodie
Publisher: MCG
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Chapter 15, Problem 24PS
A put option with strike price
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The stock price of Google is $32. The price of an American call option with strike price $32 and a six-month expiration date is $5 and the price of the corresponding Amertican put option
(same maturity and expiration date) is $6. The risk-free interest rate is 5%. Are these prices compatible with the absence of arbitrage opportunities? Why?
O1. No, because the put-call parity relationship suggests that ct - Pt = St - K exp(-Ro (T-t)) and this is not satisfied in this case.
O II. Yes, because the price of the American put option is greater than the price of the American call option violating the inequality conditions defining the put-call parity relationship.
O II. No, because the put-call parity relationship for American options suggests that St - Ks t - Pt s St - K exp(-Ro (T-t)).
O V.It depends on whether the stock pays dividends or not.
The hedge ratio of an at-the-money call option on IBM is 0.36. The hedge ratio of an at-the-money put option is -0.64. What is the
hedge ratio of an at-the-money straddle position on IBM? (Negative answer should be indicated by a minus sign. Round your answe
to 2 decimal places.)
Hedge ratio
2. Calculate the put premium according to put-call parity which gives no arbitrage opportunity.
Explain what transaction would you do if the put premium is below/above the put premium you
calculated.
European call option premium: c = $2
Stock price today: So- $30
Life of option: T=0.5
Risk-free rate for maturity T with continous compounding: r= 8%
Strike price: K= Decide on the K value yourself (carefully).
No dividends paid during life of option.
Chapter 15 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
Ch. 15.2 - Plot the rate of return to the call-plus-bills...Ch. 15.2 - Prob. 2EQCh. 15 - Prob. 1PSCh. 15 - Prob. 2PSCh. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Prob. 6PSCh. 15 - Prob. 7PSCh. 15 - The following diagram shows the value of a put...
Ch. 15 - You are a portfolio manager who uses Options...Ch. 15 - An investor purchases a stock for 38 and a put for...Ch. 15 - ll. Imagine that you are holding shares of stock,...Ch. 15 - Prob. 12PSCh. 15 - The common stock of the R.U.I.T. Corporation has...Ch. 15 - 14. The common stock of the C.A.L.L. Corporation...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Prob. 17PSCh. 15 - Prob. 18PSCh. 15 - Prob. 19PSCh. 15 - In what ways is owning a corporate bond similar to...Ch. 15 - Prob. 21PSCh. 15 - Consider the following options portfolio: You...Ch. 15 - Consider the following portfolio. You write a put...Ch. 15 - A put option with strike price 300 on the Acme...Ch. 15 - You buy a share of stock, mite a one-year call...Ch. 15 - Joe Finance has just purchased a stock-index fund,...Ch. 15 - You write a call option with X=50 and buy a call...Ch. 15 - Devise a portfolio using only call options and...Ch. 15 - Prob. 29CCh. 15 - Prob. 1CPCh. 15 - Prob. 2CPCh. 15 - Prob. 3CPCh. 15 - Prob. 4CPCh. 15 - Prob. 5CPCh. 15 - Prob. 1WM
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- The hedge ratio of an at-the-money call option on IBM is 0.37. The hedge ratio of an at-the-money put option is −0.63. What is the hedge ratio of an at-the-money straddle position on IBM? Note: Negative answer should be indicated by a minus sign. Round your answer to 2 decimal places.arrow_forwardShort straddle is an option strategy that involves simultaneously selling a put and a call on the same stock with the same strike price, which is equal to the current stock price. Profit or Loss What is the purpose of this strategy? $400 SO 30 To profit from a large price increase SHORT STRADDLE A To profit from large price deviations from the current price D) To profit from a large price decrease 40 B To profit from the lack of price deviations from the current price 50 Stock Price at Expiration :arrow_forward1. Given that the Asian option is an option where the strike price is equal to the average prices of the underlying stock, what is the strike price if you have the following stock prices? 7.822, 3.026, 9.206, 7.211 2. The asian option is an option where you can exercise the option at any time (True or False) 3. floors can be used to limit the losses for your credit portfolio if you are invested in variable rate bonds (True or False)arrow_forward
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- please give Step by Step Solution otherwise i give you DISLIKE !arrow_forward3. Suppose that a June put option to sell a share for $60 costs $4 and is held until June. (a) short position) make a profit? Under what circumstances will the seller of the option (i.e., the party with a (b) Under what circumstances will the option be exercised? (c) depends on the stock price at the maturity of the option. Draw a diagram showing how the profit from a short position in the optionarrow_forwardSolve thisarrow_forward
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