Topic 8 Warm Up Problems

# Topic 8 Warm Up Problems - 3. What is the dividend yield of...

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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 1b) Buying a \$30 call option with a premium of \$5.00 1c) Writing a \$40 call option with a premium of \$6.00 1d) Writing a \$20 put option with a premium of \$2.00 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 price must the identical put option be trading for?
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Unformatted text preview: 3. What is the dividend yield of a \$58 put option with 6 months to maturity that is selling for \$6.17, if the underlying stock is trading for \$55, the risk free rate is 5%, and the identical call option is selling for a premium of \$4.05? 4. If a \$50 call option with 4 months to maturity is trading for \$3.15 and the identical put option is trading for \$5.50, what is the price of the underlying stock if the dividend yield is 4% and the risk free rate is 6%? 5. If a \$45 call with 3 months to maturity is trading for \$6 and the identical put is trading for \$3, does put-call parity hold if the underlying stock is trading for \$48, the dividend yield is 0% and the risk free rate is 6%?...
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## This document was uploaded on 06/09/2010.

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