CHAPTER_20 - 6 a Keep gold stocks and buy 6-month puts with...

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1 CHAPTER 20 Understanding Options Answers to Problem Sets 1. Call; exercise; put; European. 2. Figure 20.13a represents a call seller; Figure 20.13b represents a call buyer. 3. a. The exercise price of the put option (i.e., you’d sell stock for the exercise price). b. The value of the stock (i.e., you would throw away the put and keep the stock). 4. Value of call + PV(exercise price) = value of put + value of asset (e.g., share). See table below. Relationship holds only for European options with same exercise price. 5. Buy a call and lend the present value of the exercise price.

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Unformatted text preview: 6. a. Keep gold stocks and buy 6-month puts with an exercise price equal to 83.3% of the current price. b. Sell gold stocks, invest £485,000 for 6 months at 6%. The remaining £115,000 can be used to buy calls on the gold stocks with the same exercise price. 9. a. Zero 2 b. Stock price less the present value of the exercise price. 10. The call price (a) increases; (b) decreases; (c) increases; (d) increases; (e) decreases; (f) decreases. 16. From put-call parity: C + [EX/(1 + r)] = P + S P = –S + C + [EX/(1 + r)] = –55 + 19.55 + [45/(1.025)] = \$8.45...
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CHAPTER_20 - 6 a Keep gold stocks and buy 6-month puts with...

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