opean call option on Lotus stock opean put option on Lotus stock s stock price e to expiration of options in month rcise price of options =-free rate dend to be paid in 3 months $8 $4 $60 3 $55 10% $1.50
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- State whether the following statements are true or false. In each case, provide a brief explanation. a. By observing the prices of call and put options on a stock, one can recover an estimate of the expected stock return. b. An investor would like to purchase a European call option on an underlying stock index with a strike price of 210 and a time to maturity of 3 months, but this option is not actively traded. However, two otherwise identical call options are traded with strike prices of 200 and 220 respectively, hence the investor can replicate a call with a strike price of 210 by holding a static position in the two traded calls. c. In a binomial world, if a stock is more likely to go up in price than to go down, an increase in volatility would increase the price of a call option and reduce the price of a put option. Note that a static position is a position that is chosen initially and not rebalanced through time.You buy a put and a call on a stock that expire at time T. They are European options. Both the put and the call have an exercise price of $50. Plot the cash flows at the time of expiry. This strategy has a name. What is it?Stock options, gold options and index options are examples of options where the underlying assets are stocks, gold and stock market index, respectively. What is the difference between European and American option? Are European options available exclusively in Europe and American options available exclusively in the United States? You own a call option on Intuit stock with a strike price of RM36. The option will expire in exactly three months’ time. If the stock is trading at RM46 in three months, what will be the payoff of the call? If the stock is trading at RM32 in three months, what will be the payoff of the call? Draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration. Suppose that a June put option to sell a share for RM10 costs RM2 and is held until June. Under what circumstances will the seller of the option make a profit? Under what circumstances will the option exercised?
- You are planning for long term investment in a stock. After specific analysis you have two options i.e., Stocks of Company A and Stocks of Company B. You have following data on the stock prices of both companies; Time Line Share A Share B 2010 15 125 2020 41 320 Please select the share that is more likely give you better return in the long run. Also, show your selection process.A trader buys a European put on a share for K3. The stock price is K42 and the strike price is K40. State the circumstances under which the trader will make a profit. State the circumstances under which the option will be exercised. Draw a diagram in support of your answers above, showing the variation of the trader’s profit with the stock price at the maturity of the optionYou are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock = $74 price Exercise price = $70 Risk-free rate = Option maturity = 4 months Standard deviation of annual stock returns 4.4% per year, compounded continuously Call price Put price = 62% per year
- You are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock $72 price Exercise price = $70 Risk-free rate = deviation of Option maturity = 4 months Standard annual stock returns = Call price Put price 4.3% per year, compounded continuously = 61% per yearYou are given the following information on some company's stock, as well as the risk- free asset. Use it to calculate the price of the call option written on that stock, as well as the price of the put option. (HINT: You should use the Black-Scholes formula!) (Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) Today's stock = $86 price Exercise price = $85 Risk-free rate = Option maturity = 4 months Standard deviation of 5% per year, compounded continuously annual stock returns = 62% per yearA close family friend has approached you to help her determine which of the two common stocks she should invest in. Common Stock A Common stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.6 19% 0.25 14% 0.25 22% Required: Calculate the expected returns of stock A Determine the risk (standard deviation) and return of stock A Calculate the expected returns of stock B Determine the risk (standard deviation) and return of stock B Which investment should your friend invest in?
- A close family friend has approached you to help her determine which of the two common stocks she should invest in Common Stock A Common Stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.6 19% 0.25 14% 0.25 22% Required: Calculate the expected returns of stock A Determine the risk (standard deviation) and return of stock A Calculate the expected returns of stock B Determine the risk (standard deviation) and return of stock B Which investment should your friend invest in? Jenny has decided that she will invest her $100,000 savings in stocks as follows: What rate of return should Jenny expects to receive on her portfolio? Company Percentage of Investment Expected rate of return Standards Company Limited 45% 9% Starbucks 15% 12% Treasury Bill 40% 4%Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return 0.35 13% 0.25 −7% 0.30 17% 0.25 8% 0.35 21% 0.25 15% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here%. (Round to two decimal places.)Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return 0.25 13% 0.25 −7% 0.50 14% 0.25 7% 0.25 18% 0.25 16% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here %. (Round to two decimal places.) Part 2 The standard deviation of stock A is enter your response here %. (Round to two decimal places.) Part 3 b. The expected rate of return for stock B is enter your response here %. (Round to two decimal places.) Part 4 The standard deviation for stock B is enter…