fina 524 chapter 1 and chapter 2 - FINA 524 SAPAN PANCHAL...

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Unformatted text preview: FINA 524 SAPAN PANCHAL ID 110 00 3260 CHAPTER - 1 Problem 1.13 Suppose that a March call option on a stock with a strike price of $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a gain? Under what circumstances will the option are exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option. Answer:- The holder of the option will gain if the price of the stock is above $52.50 in March. (This ignores the time value of money.) The option will be exercised if the price of the stock is above $50.00 in March. The profit as a function of the stock price is shown in Figure S1.1. Figure S1.1 Profit from long position in Problem 1.13 Problem 1.20. A trader enters into a short forward contract on 100 million yen. The forward exchange rate is $0.0080 per yen. How much does the trader gain or lose if the exchange rate at the end of the contract is (a) $0.0074 per yen; (b) $0.0091 per yen? Answer:- a) The trader sells 100 million yen for $0.0080 per yen when the exchange rate is $0.0074 per yen. The gain is millions of dollars or $60,000. b) The trader sells 100 million yen for $0.0080 per yen when the exchange rate is $0.0091 per yen. The loss is millions of dollars or $110,000. CHAPTER - 2 Problem 2.15....
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fina 524 chapter 1 and chapter 2 - FINA 524 SAPAN PANCHAL...

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