Practice Problems for FINA3331 _ Solutions

Practice Problems for FINA3331 _ Solutions - Practice...

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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
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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
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This note was uploaded on 06/02/2011 for the course FINA 3331 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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Practice Problems for FINA3331 _ Solutions - Practice...

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