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- Assume you are an option buyer . Strike price is $ and option premium is $3 . You will pay $ 44 when you exercise the option Select one: True FalseHow to replicate the payoff of a bond (riskless portfolio) using shares and call options? Based on this conclusion, how does a single-step binomial tree option pricing model work?b) Jay is holding some Tesla shares (NASDAQ: TSLA) and The TSLA stocks are currently trading at $985 on the Nasdaq. Given TSLA stocks are very volatile, Jaleel wishes to protect the value of his investments. He seeks your advice on using option contracts and presents a list of options for you to choose from. Assume the number of underlying shares per contract is 100 shares. Strike $975 $980 $985 $1005 (i) (ii) Call premium Moneyness $10.01 $4.45 $0.63 $0.05 Put premium Moneyness $0.01 $0.04 $0.99 $20.48 Please specify the moneyness of the above options. Are they in the money, at the money, or out of the money? Explain the type of risk that Jay is facing and which option is your suggestion to control his risk, provide your reason and explain it.
- Q12. Assume that the underlying asset is Gold ETF (Gold Exchange Traded Fund), an investment asset with no storage cost and no dividend. The information of the stock price, maturity of the forward contract, and risk-free rate is provided below: Stock/Spot Price Maturity date of Forward Contract (2 years) Risk-Free Rate Based on the above information, which of the following is closest to the correct No- Arbitrage Forward Price (FO)? (A) 391.5727 (B) 357.8705 (C) 403.4979 (D) O Answer:You are a hotel manager and you are considering four projects that yield different payoffs, depending upon whether there is an economic boom or a recession. The potential payoffs and corresponding payoffs are summarized in the accompanying table. Recession (50%) -$ 10 $ 20 -$ 30 $ 50 Boom (50%) $ 20 Project A B -$ 10 $ 30 $ 50 If a manager adopted both projects A and B simultaneously, the varlance in returns assoclated with this joint project would be Multiple Choice 0. 10. 30. 50.I am again unsure on how to correctly multiply and then how to solve for the expected payoff because I cannot determine which is the correct option for R.
- You are the buyer for The Shoe Outlet. You are looking for a line of men’s shoes to retail for $79.95. If the markup on men's shoes is 45% based on selling price, what is the corresponding percent markup based on cost? (round answer to nearest tenth of a percent)Let $P1 be the price you were supposed to find in the previous question, and assume that you observe that the option is selling for a different price, $P2. Which of the following MUST be true? If P1>P2, then you can make an arbitrage, and your arbitrage strategy, among other things, will include borrowing money and selling the stock If P1P2, then you can make an arbitrage, and your arbitrage strategy, among other things, will include short-selling the stock and investing money If P1I am in possession of two coins. One is fair so that it lands heads (H) and tails (T) with equal probability while the other coin is weighted so that it always lands H. Both coins are magical: if either is flipped and lands H then a $1 bill appears in your wallet, but when it lands T nothing happens. You may only flip a coin once per period. The interest rate is i per period. You are risk-neutral and thus only concern yourself with expected values (and not variance). For simplicity, in the questions below assume you will live forever. 1. How much are you willing to pay for such a coin that you know is fair? 2. How much are you willing to pay for such a coin that you know is weighted? 3. I currently own the coins and know which is fair and which is weighted, but you cannot tell which is which. You may make an offer to purchase a coin of your choosing, which I am free to accept or reject. What is the most you are willing to offer? Explain how you arrived at this answer. 4. Suppose now…I am in possession of two coins. One is fair so that it lands heads (H) and tails (T) with equal probability while the other coin is weighted so that it always lands H. Both coins are magical: if either is flipped and lands H then a $1 bill appears in your wallet, but when it lands T nothing happens. You may only flip a coin once per period. The interest rate is i per period. You are risk-neutral and thus only concern yourself with expected values (and not variance). For simplicity, in the questions below assume you will live forever. Suppose now that I also do not know which coin is fair and which is weighted. You pick one of the two coins at random. (a) What is your willingness to pay for this coin? (b) What is your willingness to pay for an option* to purchase the coin, where the option works as follows: you may flip the coin once and observe the outcome. Then, if you wish, you may purchase the coin from me for the amount you determined in part 4(a). *The owner of an option has…“During your 48-month tour of duty, you will invest $200 per month for the first 45 months. We will make the 46th, 47th, and 48th payments of $200 each for you. When you leave the service, we will pay you $10,000 cash.” Is this a good deal for Corporal Moneymaker? Use the IRR method in developing your answer. What assumptions are being made by Corporal Moneymaker if he enters into this contract? ( please solve IRR method , not excel solver or from table values)A ten-year term insurance is be issued to a life aged 50. The sum insured is $200,000 and payable immediately upon death. Premium payments are annual in advance. a) Using the SOA Standard Ultimate Life Table at i = 5% and UDD, compute the net annual premium determined by the equivalence principle. b) Find the probability that this contract makes a profit. c) Compute the gross premium determined by the equivalence principle if the initial expense is $500 plus 10% of the first premium, and if there is a renewal expense of 2% of the annual premium payment for the second and all subsequent premium payments.SEE MORE QUESTIONS