MA373 F15 Homework Chapter 3 DM

# MA373 F15 Homework Chapter 3 DM - Derivative Markets...

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Derivative Markets Chapter 3 Homework November 24, 2015 Use the following information to complete the problems 1-11. The current spot price of PAC stock is 60. PAC stock does not pay a dividend. The current annual effective risk free interest rate is 4.04%. For forward price for a 6 month forward contract on PAC stock is 61.20. You have the following premiums for European style calls or European style puts which expire in 6 months: Strike Price Call Premium Put Premium 57 6.46 2.37 60 4.80 3.64 63 3.46 5.25 1. Create a payoff-profit table for a Cap on PAC stock. Assume that any option is purchased with a strike price equal to the current spot price of the underlying asset. 2. Create a payoff-profit table for Floor on PAC stock. Assume that any option is purchased with a strike price equal to the current spot price of the underlying asset. 3. Create a payoff-profit table for a 6 month synthetic forward on PAC stock using options with a strike price of 63. 4. Create a payoff-profit table for a 6 month Bull Spread on PAC stock using a 60 strike call and a 63 strike call. 5. The premium for a 6 month European style call on PAC stock is 1.46 if the strike price is 70. Determine the premium for a 6 month European style put on PAC stock if the strike price is 70. 6. The premium for a 6 month European style put on PAC stock is 1.70 if the strike price is 55. Determine the premium for a 6 month European style call on PAC stock if the strike price is 55. 7. Create a payoff-profit table for a 6 month Bull Spread on PAC stock using a 57 strike put and a 63 strike put.

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