Finance Homework 7
ARE 171A
Winter 2011
A. Havenner
[15]
1.
Diagrams:
Briefly explain why the value of a portfolio consisting of a single share of the
S&P 500 ETF (SPY)! and a put with an excercise price of $125 is constant over some range at the
expiration of the put. Tell what the range is, and describe generally what happens if the share price
moves outside of the range. (This is to get you to think your way through the diagrams underlying
putcall parity.)
[10]
2.
PricingPutsfrom Calls:
Based on SPY again, consider a put and a call that expire a year
from today, both with strike prices of $125. Today's annual risk free rate is 0.24%,
i.e., 0.0024.
SPY is selling for $131.02 right now and the call option is selling for $8.95. What do you expect
the put option to sell for?
3. Valuing otions that are out
ofthe money:
We want to value a six month European call
option on DCX. The exercise price is $66. The stock is currently selling for $65 per share. It is
expected either to rise to $81.25 or fall to $52 in six months. The six month risk free rate is 4.75%.
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 Spring '08
 WHITNEY
 Strike price

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