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Unformatted text preview: Riccardo Colacito Division of Finance Problem Set 3 Investments Due date: April, 1 2010 in class 1. One month ago you purchased a put option on the S&P500 index with an exercise price of $910 at $1.00. Today is the expiration date and the index is at $900.96. Will you exercise the option? What will be your proflt? 2. Suppose that you purchased a call option with a strike price of $30 and paid a premium of $6. (a) Draw a graph of your payofi and proflt would be at expiration for stock prices in the range of $10 to $70. (b) Now assume that instead of buying the call you wrote the option. Draw a graph of your payofi and proflt would be from this perspective. 3. You bought a stock for $40. You have decided to buy a protective put with a strike price of $32. The premium is $5. (a) Calculate the items listed in the table below. Stock Price at Expiration 10 20 30 40 50 60 70 Put Option Value Net Proflt for Put Value of Stock + Put Proflt on Stock Net proflt for Stock + Put (b) Draw a graph that shows the payofi and the proflt for the combined stock and...
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- Fall '09