1
SAMPLE SOLUTIONS FOR
DERIVATIVES MARKETS
Question #1
Answer is D
If the call is at-the-money, the put option with the same cost will have a higher strike price.
A purchased collar requires that the put have a lower strike price.
(Page 76
)
Question #2
Answer is C
66.59 – 18.64 = 500 –
K
exp(–0.06) for
K
=
480
(Page 69)
Question #3
Answer is D
The accumulated cost of the hedge is (84.30-74.80)exp(.06) = 10.09.
Let
x
be the market price.
If
x
< 0.12 the put is in the money and the payoff is 10,000(0.12 –
x
) = 1,200 – 10,000
x
.
The sale of the jalapenos has a payoff of 10,000
x
– 1,000 for a profit of 1,200 – 10,000
x
+
10,000
x
– 1,000 – 10.09 = 190.
From 0.12 to 0.14 neither option has a payoff and the profit is 10,000
x
– 1,000 – 10.09 =
10,000
x
– 1,010.
If
x
>0.14 the call is in the money and the payoff is –10,000(
x
– 0.14) = 1,400 – 10,000
x
.
The profit is 1,400 – 10,000
x
+ 10,000
x
– 1,000 – 10.09 = 390.
The range is 190 to 390.
(Pages 33-41)
Question #4
Answer is B
The present value of the forward prices is 10,000(3.89)/1.06 + 15,000(4.11)/1.065
2
+
20,000(4.16)/1.07
3
= 158,968.
Any sequence of payments with that present value is
acceptable.
All but B have that value.
(Page 248)
Question #5
Answer is E