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Unformatted text preview: FIN 171a: Financial Economics Brandeis International Business School Spring 2008 Problem Set 5: Options Due Friday, April 18th in the mailbox of Xiaodi or Thursday, April 17 in class. 1. (10 points) Option payoff and profit: You are given the closing prices of various IBM options with the same maturity. Use these prices to calculate the payoff and the profit for an investment in each of the following options. Assume that the stock price at maturity is equal to S T = 93. option strike price payoff profit C 90 6.10 P 90 2.45 C 95 3.10 P 95 4.80 C 100 1.55 P 100 8.40 2. (25 points) Investment strategies with and without options: Suppose you think that Boeing (BA) stock is going to appreciate substantially in value by the end of May, i.e. over the next 1.5 months. The stocks current price is S 0 = 87.37. The call option expiring in 1.5 months with exercise price X = 85 is trading at an option premium of C = 5.00. You have 10,000 to invest and are considering three alternatives: 1) All stocks: invest all 10,000 in the stock (you buy 114.46 shares)....
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 Spring '08
 Yusim
 Economics

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