Which of the following positions creates a bull spread that has a zero payoff below a stock price of $120, a positive payoff if the stock price exceeds $120, and that yields its maximum payoff if the stock price is $131 or greater on the expiration date of the contracts? Assume the current stock price is $114, and that the risk-free rate is 3% per annum on a continuous basis. There may be more than one correct answer. Indicate all that are true.
b) a long call with a strike price of $114 and a short call with a strike price of $131, both expiring in one year
Compare a straddle with a strangle, with payoffs both centered around a stock price of $55, and all else equal between them. Which is cheaper in terms of total option premiums paid?
b) Stranglec)Not enough information to tell
Strike Price Call Price Put Price
$1'650 $465 $330
$1'920 $??? $480
Based on these quoted
prices, what is the price of the missing call option? Assume no cost of carry
and no convenience yield.
b) What is the price today of the following portfolio: a put option on ABC with a strike of $100, a call option on ABC with a strike of $50, and a call option on XY7 with a strike of $70.
Problem 5 (a)
Q.a) What is the price of the put option?
Q.b) What is the price of the put option if the stock pays a dividend of $3 in 3 months? Remember that the stock price immediately drops after dividend paid.
Q.c) Now, value an American call option with a strike price of $25 on the same stock with identical price dynamics and interest rate as in part (b). Assume that if you exercise the option in 3 months you receive the dividend of $3 paid on that date.