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DM HW Chapter 3

# DM HW Chapter 3 - 1 The current price of a share of The MAR...

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November 30, 2011 1. The current price of a share of The MAR Company is 50. The following table represents the premiums for a one year call option and a one year put option on MAR: Strike Price Call Premium Put Premium 54.00 0.57 3.25 Calculate the annual effective risk free interest rate. 2. You are given the following premiums for a one year put and a one year call: Strike Price Call Premium Put Premium 52 8.00 6.09 54 5.00 5.00 Determine the annual effective risk free interest rate. 3. The stock of Johnson Corporation sells for 60 today and does not pay a dividend. Brett sells the stock of Johnson Corporation short and purchases a one year call with a strike price of 62. The premium for the call is 5.00 . The annual effective risk free interest rate is 3%. Calculate the profit on this transaction if the spot price of Johnson Corporation is 55 in one year. 4. Troup Corporation’s stock is selling for 100. The stock does not pay a dividend. The annual effective risk free interest rate is 4%.

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DM HW Chapter 3 - 1 The current price of a share of The MAR...

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