8.) You place a market buy order for 100 WMK stocks. Your broker charges $12 per
ID: 2818619 • Letter: 8
Question
8.) You place a market buy order for 100 WMK stocks. Your broker charges $12 per order. How much this transaction cost you? (5 points) ) Your sister short sell 100 sharesofw MK at market price with a 50% initial margin. She ed a bad news from WMK earning announcement on October 14. Suppose that on 9. Oct 14, WMK price falls to $39.79. Ignoring fees, interest and dividend, what is the annual rate of return on her trade? (10 points) a. b. What is the critical price? (5 points) 10,) Your sister, on the other hand, can buy WMK option based on her speculation. Supposed she did buy WMK out of the money option contract. What is the rate of return on her gain or loss from the trade? (You need to figure out what is the appropriate option to buy) (10 points)Explanation / Answer
Answer 8.
Current share closing price is 44.21
if i sell 100 shares
100*44.21=4,421
Brockerage charge is 12 repees per share
Transaction cost is 100*12=1,200.
Answer 9 B.
When utilities observe or anticipate high wholesale market prices or power system emergency conditions, they may call critical events during a specified time period (e.g., 3 p.m.—6 p.m. on a hot summer weekday), the price for electricity during these time periods is substantially raised. Two variants of this type of rate design exist: one where the time and duration of the price increase are predetermined when events are called and another where the time and duration of the price increase may vary based on the electric grid’s need to have loads reduced.
We consider an American put option on a dividend-paying stock whose volatility is a function of the stock value. Near the maturity of this option, an expansion of the critical stock price is given. If the stock dividend rate is greater than the market interest rate, the payoff function is smooth near the limit of the critical price. We deduce an expansion of the critical price near maturity from an expansion of the value function of an optimal stopping problem. It turns out that the behavior of the critical price is parabolic. In the other case, we are in a less regular situation and an extra logarithmic factor appears. To prove this result, we show that the American and European critical prices have the same first-order behavior near maturity. Finally, in order to get an expansion of the European critical price, we use a parity formula for exchanging the strike price and the spot price in the value functions of European puts.
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