Essential of Invest II. Answer the following short questions (1) Y ou create a s

Question

Essential of Invest II. Answer the following short questions (1) Y ou create a strap by buying two calls and one put on ABC stock, all with a strike price of $45. The calls cost $5 each, and the put costs $4. If you close your position when what is your per-share gain or loss? A gc gain ABC stock is priced at $55, (2) If a stock is selling for $25, the exercise price of a put option on that stock is $20, and the time to (3) The current price of an asset is $75. A three-month, at-the-money American call option on the asset expiration of the option is 90 days, what are the minjmum and maximum prices for the put today? has a current value of $5. At what value of the asset will a covered call writer break even at (4) The current price of an asset is $100. An out-of-the-money American put option with an exercise price of $90 is purchased along with the asset. If the breakeven point for this hedge is at an asset price of SI 14 at expiration, whats the value of the American put at the time of purchase?19 A stock index futures contract matures in one year. The cash index currently has a level of $1,000 with a dividend yield of 2 %, and the interest rate is 5%, what does the spot-future parity imply a cash index level of? (6) The Star Income Fund's average daily total assets were $100 million for the year just completed. Its stocks purchases for the year were $20 million, while its sales were $12.5 mlion. What was it turnover (7) You purchase 25 calls contracts on Blue Ox stock. The strike price is $22, and the premium is $1. If the stock is selling for $24 per share at expiration, what is your call options worth? What is your net profit? What if the stock were selling for $23? $22? Each contract size is 100 shares. (8) Stock in BB is currently prices $20 per share. a call option with a $20 strike and 60 days to maturity is quoted at $2 Compare the percentage gains and losses from a $2,000 investment in the stock versus the option in 60 days for stock prices of $26, $20, and $18. (9) The Mango Fund has a net asset value of S50 per share. It changes a 3% load. How much will you pay (10) Suppose you purchase 10 orange juice contracts today at the settle price of SI per pound. How much (20 marks) for 100 shares? do these 10 contracts cost you? If the settle price is lower tomorrow by 2 cents per pound, how much do you make or lose? The contract size is 15,000 pounds.

Explanation / Answer

1. You have purchased two call at $5 per call premium and a put at $4 per put premium.

So total premium paid = $5 + $5 + $4

= $14.

Total premium paid that is total investment is $14.

Strike price of option is $45 and close position at $55. in call option investor incure gain when stock price is higher than stock price. So call option can be excercised only when stock price is higher than strike price and put option is excercise when strike price is higher than stock price.

Here, stock price is higher than strike price, so, call option should be excercised but put option cannot.

So total gain = 2 × ($55 - $45) - $14

= $20 - $14

= $6

Total gain for investor is $6.

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