Practice Problems for FINA3331 _ Solutions

Practice Problems for FINA3331 _ Solutions - Practice...

This preview shows pages 1–3. Sign up to view the full content.

Practice Problems for FINA3331-Final Exam-Spring 2011 1. An investor buys a call at \$2.5 for one share of XYZ stock with an exercise price of \$87. Draw the payoff/profit/losses diagram and complete the table below St < X St ≥ X Long call 0 St-X Costs/fees -C -C Profit/loss -C St-X-C What would have been the investor’s breakeven stock price, the maximum profits and maximum losses? Max. Profits:_Unlimited Max. Losses:2.5 Breakeven price:St-X-C=0 => St=X+C=87+2.5=89.5 What would have been the investor’s profits if the stock’s price at expiration was \$84 or \$89? Profits /losses when stock price = \$84 are –C=-2.5 Profits /losses when stock price = \$89 are St-X-C=89-87-2.5=-0.5 Page 1 of 5

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2. An investor sells a call at \$2.1 for one share of XYZ stock with an exercise price of \$88. Draw the payoff/profit/losses diagram and complete the table below St < X St ≥ X Short call 0 X-St Costs/fees +C +C Profit/loss +C X-St-C What would have been the investor’s breakeven stock price, the maximum profits and
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 5

Practice Problems for FINA3331 _ Solutions - Practice...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online