# B 24 you purchased one silver future contract at 3

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(B) 24. You purchased one silver future contract at \$3 per ounce. What would be your profit (loss) at maturity if the silver spot price at that time is \$4.10 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs. A. \$5.50 profit B. \$5,500 profit C. \$5.50 loss D. \$5,500 loss E. None of these is correct.
\$4.10 - \$3.00 = \$1.10 X 5,000 = \$5,500.
(C) 25. Given a stock index with a value of \$1,000, an anticipated dividend of \$30 and a risk-free rate of 6%, what should be the value of one futures contract on the index?
(E) 26. You sold one oil future contract at \$70 per barrel. What would be your profit (loss) at maturity if the oil spot price at that time is \$73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.
Part II: Problem-Solving Questions 1. The following price quotations on IBM were taken from the Wall Street Journal . A) The premium on one IBM February 90 call contract is
B) Suppose you purchase one IBM May 100 call contract at \$4.5 and write one IBM May 105 call contract at \$1.75. B)
C) If, at expiration, the price of a share of IBM stock is \$102, your profit would be
D) The maximum loss you could suffer from your strategy is
E)
2. An American-style call option with 3 months to maturity has a strike price of \$35. The underlying stock now sells for \$41. The call premium is \$10. A) What is the intrinsic value of the option?
B) What is the time value of the call?
C). If the risk-free rate is 6%, what should be the value of a put option on the same stock with the same strike price and expiration date?
3. You are evaluating a stock that is currently selling for \$40 per share. Over the investment period you think that the stock price might go down 10% or go up 15%. There is a call option available on the stock with an exercise price of \$45. Answer the following questions about hedging your position in the stock. Assume that you will hold one share, and the risk-free rate is 5%. A) What is the hedge ratio?
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