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428_PS6_S09

# 428_PS6_S09 - AEM 428 Spring 2009 Professor Manny Dong...

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AEM 428 Due on April 16 Spring 2009 Professor Manny Dong Optional Problem set 6 1) Each option contract is for 100 shares. Calculate your total profit or loss (at the time when the options expire or when the option positions are closed out) for each of the following scenarios. 1a At time 0, the price of IBM is S 0 = \$85.10. You sell 2 call option contracts with strike price X = \$85.00 for the price of \$3.70 (per share). When the options expire 2 months later, the spot price of IBM is \$75.00. 1b Same as (1a), except that the spot price 2 months later is \$105. 1c. Same as (1a), except that you close out your options 1 month later when the call price is \$4.00. 1d At time 0, the price of MSFT is S 0 = \$56.00. You buy 5 put contracts with strike price X = \$45.00 for the price of \$1.05. When the options expire 3 months later, the spot price of MSFT is \$60.04. 1e. Same as (1d), except that the spot price of MSFT at the time the put options expire is \$42.20. 2) For each of the following scenarios, first draw the payoff of each instrument at expiration and

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428_PS6_S09 - AEM 428 Spring 2009 Professor Manny Dong...

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