2 - THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND...

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1 THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND ECONOMICS FINA0301CDE - DERIVATIVES First Semester, 2009-2010 Tutorial 2 Problem Set – Chapter 3 c Practice Questions Question 1 (Bull and Bear Spread) Suppose that put options on a stock with strike prices \$30 and \$35 cost \$4 and \$7 respectively. (a) How can the options be used to create (i) a bull spread and (ii) a bear spread? (b) Construct a table that shows the profit and payoff for both spreads. Question 2 (Bull Spread) Construct a table showing the payoff from a bull spread when puts with strike prices K 1 and K 2 , with K 2 > K 1 are used. For Question 3-5 , assumed the following: Effective 6-month interest rate: 2% S&R 6-month forward price: \$1020 Premiums for S&R options with 6 months to expiration: Strike (K) Call Put \$950 \$120.405 \$51.777 1000 93.809 74.201 1020 84.470 84.470 1050 71.802 101.214 1107 51.873 137.167

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FINA0301 – Tutorial 2 Mr. Clive Man Chung HO 2 *We will go through these questions during tutorial. Question 3*
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This note was uploaded on 01/26/2010 for the course FINA 2802 taught by Professor Xia during the Fall '09 term at HKU.

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2 - THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND...

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