CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 2819440196239
Author: Bodie
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 15, Problem 8PS
The following diagram shows the value of a put option at expiration:
Ignoring transaction costs, which of the following statements about the value of the put option at expiration is true?
a. The expiration value of the short position in the put is
b. The expiration value of the long position in the put is
e. The long let has a positive expiration value when the stock price is below
d. The value of the short position in the put is zero for stock prices equaling or exceeding
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Use the put-call parity relationship to demonstrate that an at-the-money call option on a nondividend-paying stock must cost more than an at-the-money put option. Show that the prices of the put and call will be equal if S0 = (1 + r)T..
Consider a forward contract on a stock that pays dividends at specific times ti, where 0 < t1 < t2 < ... < tn < T.
Suppose that the dividend is a fixed amount: Di at fixed times ti. Show that in this case, the forward contract price is given by
Tick all those statements on options that are correct (and don't tick those statements that are incorrect).
O a. The Black-Scholes formula is based on the assumption that the share price follows a geometric Brownian motion.
Ob. The put-call parity formula necessarily requires the assumption that the share price follows a geometric Brownain motion.
0 C. If interest is compounded continuously then the put-call parity formula is P+ S(0) = C + Ke where I is the expiry time.
Od. In general the equation S(T) + (K − S(T))+ (S(T) — K)† + K is valid.
An American put option should never be exercised before the expiry time.
e.
=
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Required: a-1. If the stock price at option expiration is $143, will you exercise your call? multiple choice 1 Yes No a-2. What is the net profit/loss on your position? (Input the amount as a positive value.) a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) b-1. Would you exercise the call if you had bought the November call with the exercise price $130?multiple choice 2 Yes No b-2. What is the net profit/loss on your position? (Input the amount as a positive value.) b-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) c-1. What if you had bought the November put with exercise price $140 instead? Would you exercise the put at a stock price of $140?multiple choice 3 Yes No c-2. What is the rate of return on your position? (Negative value should be indicated by a minus…arrow_forward1. An option is trading at $5.26, has a delta of .52, and a gamma of .11. what would the delta of the option be if the underlying increases by $.75? What would the delta of the option be if the underlying decreases by $1.05? Explain.arrow_forwardWhich of the following describes delta? O The ratio of the option price to the stock price None of these O The ratio of a change in the option price to the corresponding change in the stock price The ratio of a change in the stock price to the corresponding change in the option price O The ratio of the stock price to the option price ◄ Previous Next ▸arrow_forward
- Which of the following statements true? A call option price is increasing in stock return volatility A put option price is decreasing in stock return volatility I. II. A) I. and II. are true B) I. is true and II. is false C) II. is true and I. is false D) I. and II. are false |arrow_forwardDescribe the effect of a change in each of the following factors on the value of a calloption:1. Stock price2. Exercise price3. Option life4. Risk-free ratearrow_forwardTick all those statements on options that are correct (and don't tick those statements that are incorrect). B a. The Black-Scholes formula is based on the assumption that the share price follows a geometric Brownian motion. b. If interest is compounded continuously then the put-call parity formula is P+ S(0) = C + Ker where T is the expiry time. An American put option should never be exercised before the expiry time. d. In general the equation S(T) +(K-S(T)) = (S(T)-K)+ +K is valid. e. The put-call parity formula necessarily requires the assumption that the share price follows a geometric Brownain motion. C.arrow_forward
- Suppose you write the following put option (1 option, not 1 contract containing 100 options). What is the payoff and profit at expiration if the stock price is $75? Put Strike Symbol 80 ABC210621C00040000 Last 3.32 a. payoff is -5.00; profit is 1.68 X b. payoff is -5.00; profit is 3.32 c. payoff is 0; profit is 0 d. payoff is -5.00; profit is -1.68 e. payoff is 0; profit is -3.32 Chg 1.47arrow_forwardWhat is the correct way to determine the value of a long forward position at expiration? The value is the price of the underlying ... ... multiplied by the forward price. ... divided by the forward price. ... plus the forward price. ... minus the forward price please need type answer not an imagearrow_forwardLet X = strike price and S = share price. A put option is deep out-of-the-money if _____________ (choose the best answer from the list below to complete the sentence). X/S is between 1.01 and 1.05 X/S is between 1.06 and 1.15 X/S is between 0.95 and 0.99 X/S is between 0.85 and 0.94 X/S is equal to 1.00arrow_forward
- 2. Derive the single - period binomial model for a put option. Include a single - period example where: u = 1.10, d = 0.95, Rf = 0.05, SO = $100, X = $100. 3. Assume ABC stock's price follows a binomial process, is trading at SO = $100, has u 1.10, d = 0.95, and probability of its price increasing in one period is 0.5 (q = 0.5). a. Show with a binomial tree ABC's possible stock prices, logarithmic returns, and probabilities after one period and two periods. . b. What are the stock's expected logarithmic return and variance for 2 periods and 3 periods? c. Define the properties of a binomial distribution.arrow_forwardThe maximum loss a seller of a stock put option can suffer is the ________. Select one: a. put premium b. strike price minus the value of the put c. stock price d. stock price minus the value of the put e. none of the abovearrow_forwardSuppose that call options on a stock with strike prices $100 and $106 cost $8 and $5, respectively. How can the options be (the profits from option positions and the total profit).arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Accounting for Derivatives Comprehensive Guide; Author: WallStreetMojo;https://www.youtube.com/watch?v=9D-0LoM4dy4;License: Standard YouTube License, CC-BY
Option Trading Basics-Simplest Explanation; Author: Sky View Trading;https://www.youtube.com/watch?v=joJ8mbwuYW8;License: Standard YouTube License, CC-BY