So I'm working on some of the DM part of FM/2 and have 2 questions...
Q1) the spot price of the market index is $900 when an investor goes long call option on the index at a strike price of $930 and premium of $40. After 3 months the market index is priced at $920. What is the investor's profit or loss assuming 3-month effective interest rate of 1%?
my answer) profit/loss of long call= Max[0, 920-930) - 1.04(40)= -40.4
Is this a correct answer? I am little confused what to do with the spot price ($900)...
Q2) The annual continuously compounded interest rate is 4% and the one-year forward price is $520.41 for this stock. An European call option on one share of XYZ stock with a strike price of K that expires in one year costs 60. A put option with the same expiration, the same strike price costs 20. Using put-call parity, determine the strike price of K.
my answer) C - P = PV (F - K) => K = 478.81. Is this the correct answer?
Q3) Suppose someone longs 4 contracts of S&P 500 index (with a multiplier 1000) with a 10% initial margin. The future is priced at $1100 at time 0. Assume the future marks to market weekly and no deposit or withdraw occurs in the (interest earning) margin account. The future prices at week 1 is $1050. The annualized continuously compounded interest rate is 0.08. What is the balance of the margin account at the end of Week 1?
my answer) totally clueless..
Can someone help me get through these questions please?:lol::lol:
Q1) the spot price of the market index is $900 when an investor goes long call option on the index at a strike price of $930 and premium of $40. After 3 months the market index is priced at $920. What is the investor's profit or loss assuming 3-month effective interest rate of 1%?
my answer) profit/loss of long call= Max[0, 920-930) - 1.04(40)= -40.4
Is this a correct answer? I am little confused what to do with the spot price ($900)...
Q2) The annual continuously compounded interest rate is 4% and the one-year forward price is $520.41 for this stock. An European call option on one share of XYZ stock with a strike price of K that expires in one year costs 60. A put option with the same expiration, the same strike price costs 20. Using put-call parity, determine the strike price of K.
my answer) C - P = PV (F - K) => K = 478.81. Is this the correct answer?
Q3) Suppose someone longs 4 contracts of S&P 500 index (with a multiplier 1000) with a 10% initial margin. The future is priced at $1100 at time 0. Assume the future marks to market weekly and no deposit or withdraw occurs in the (interest earning) margin account. The future prices at week 1 is $1050. The annualized continuously compounded interest rate is 0.08. What is the balance of the margin account at the end of Week 1?
my answer) totally clueless..
Can someone help me get through these questions please?:lol::lol:
DM questions. Please help
