Topic 8 Warm Up Problems with Solutions

Topic 8 Warm Up Problems with Solutions - Warm up Problems...

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Warm up Problems for Topic 8 (Options) **These questions are designed to represent elementary principles, and are NOT representative of problems that you will find on any exams. 1. Draw payoff diagrams for the following: 1a) Buying a $50 call option with a premium of $3.00 $50 call w/ $3 premium -10 0 10 20 30 40 50 0 50 100 Stock Price Payoff $50 call w/ $3 premium 1b) Buying a $30 put option with a premium of $5.00 -10 -5 0 5 10 15 20 25 30 03 06 0 Stock Price $30 put w/ $5 premium
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-40 -30 -20 -10 0 10 04 08 0 Stock Price Payoff write a $40 call w/ $6 premium 1d) Writing a $20 put option with a premium of $2.00 -20 -10 0 10 02 04 0 Stock Price write a $20 put w/ $2 premium 2. Someone offers you a call option with three months to maturity for $2.00. The strike price is $40 and the underlying stock is currently trading for $35. If the risk free rate is 4% and the stock does not pay dividends, at what P=$6.60
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This document was uploaded on 06/09/2010.

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Topic 8 Warm Up Problems with Solutions - Warm up Problems...

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