{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# hw1-1 - 1 Introduction Problems 1 What is the dierence...

This preview shows pages 1–2. Sign up to view the full content.

1 Introduction Problems 1. What is the difference between taking a long position in a forward contract and in a call option? Solution : Taking a long position in a forward contract is an obligation to buy an underlying asset at a fixed price. Taking a long position in a call option is a right but not an obligation to buy a certain instrument at a fixed price. The holder of a call option does not have to exercise the right. 2. Suppose the futures price of gold is currently \$324 per ounce. An investor takes a short position in a futures contract for the delivery of 1,000 ounces. How much does the investor gain or lose if the price of gold at the end of the contract is (a) \$310 per ounce; (b) \$340 per ounce? Solution : The investor takes a short position, so his payoff is E - S . Therefore a) if gold price goes down at \$310, he will gain (324 - 310) × 1 , 000 = \$14 , 000; b) if gold price goes up to \$340, he will loss (340 - 324) × 1 , 000 = \$16 , 000. 3. An investor holds a European call option for a stock with an exercise price of \$88 and the option costs \$3.50. For what value of the stock at maturity

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 2

hw1-1 - 1 Introduction Problems 1 What is the dierence...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online