Chapter 1 solutions

Chapter 1 solutions - Problem 1.15. It is May and a trader...

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Problem 1.15. It is May and a trader writes a September call option with a strike price of $20. The stock price is $18, and the option price is $2. Describe the investor’s cash flows if the option is held until September and the stock price is $25 at this time. The trader has an inflow of $2 in May and an outflow of $5 in September. The $2 is the cash received from the sale of the option. The $5 is the result of the option being exercised. The investor has to buy the stock for $25 in September and sell it to the purchaser of the option for $20. Problem 1.16. An investor writes a December put option with a strike price of $30. The price of the option is $4. Under what circumstances does the investor make a gain? The investor makes a gain if the price of the stock is above $26 at the time of exercise. (This ignores the time value of money.) Problem 1.25 In March, a US investor instructs a broker to sell one July put option contract on a stock. The stock price is $42 and the strike price is $40. The option price is $3. Explain what the investor
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This note was uploaded on 08/22/2010 for the course BUS 5335 taught by Professor Hiley during the Spring '10 term at Campbell.

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Chapter 1 solutions - Problem 1.15. It is May and a trader...

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