Tutorial.docx - Question 1(103 option Below are 4 option...

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Question 1 (103) option Below are 4 option graphs. Note that the y-axis is payoff at maturity (T). What options do they depict? List them in the order that they are numbered. (a) 1: short call, 2: long call, 3: short put, 4: long put. (b) 1: long call, 2: long put, 3: short call, 4: short put. (c) 1: short put, 2: long put, 3: short call, 4: long call. (d) 1: long put, 2: short put, 3: long call, 4: short call. (e) 1: long put, 2: short call, 3: short put, 4: long call.
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Answer: Some rules to help remember the way the graphs look: Long calls (graph 4) and long puts (graph 1) have a zero or positive payoff at maturity, so their graphs are always above the x-axis (the axis representing the underlying asset's spot price at maturity, S T ST ). The short option graphs are the symmetric opposite, the graphs are reflected in the x-axis. The payoff is always zero or negative. This makes sense since options, like all derivatives, are a zero sum game: one trader's win is her counterparty's loss. The long call graph has a positive payoff if the underlying asset price goes up. It has a positive slope. The long put graph has a positive payoff if the underlying asset price goes down. It has a negative slope. Question 2 (123) option Below are 4 option graphs. Note that the y-axis is payoff at maturity (T). What options do they depict? List them in the order that they are numbered
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(a) 1: short call, 2: long call, 3: short put, 4: long put. (b) 1: long call, 2: long put, 3: short call, 4: short put. (c) 1: short put, 2: long put, 3: short call, 4: long call. (d) 1: long put, 2: short put, 3: long call, 4: short call. (e) 1: short call, 2: long put, 3: long call, 4: short put. Answer: Some rules to help remember the way the graphs look: Long calls (graph 3) and long puts (graph 2) have a zero or positive payoff at maturity, so their graphs are always above the x-axis (the axis representing the share price at maturity, S T ST ). The short option graphs are the symmetric opposite, the graphs are reflected in the x-axis. The payoff is always zero or negative. This makes sense since options, like all derivatives, are a zero sum game: one trader's win is her counterparty's loss. The long call graph has a positive payoff if the underlying share price goes up. It has a positive slope. The long put graph has a positive payoff if the underlying share price goes down. It has a negative slope. Question 3 (387) real option , option
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One of the reasons why firms may not begin projects with relatively small positive net present values (NPV's) is because they wish to maximise the value of their: (a) Expansion option.
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  • Two '13
  • uts
  • partner, Strike price, Option style

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