1. (1 point) Assume all rates are per annum continuously compounded Pﬁzer stock (PFE) is trading at $17.10 today. Consider a Eu-
ropean call option on 1 share of PFE with strike price $17.30
expiring in 13 months. The call is selling today for $0.48. The
risk-free rate is 4.6 (a) You buy one of these calls. In 13 months at expiration,
PFE is trading at $15.85. What is the cal] worth at expiration? (b) What is your proﬁt? (Note: a loss of X corresponds to a
proﬁt of —X). (c) Suppose PFE is trading at expiration for $15.30 but you
exercise the call anyway. What is your proﬁt? (d) Now instead suppose that PFE is trading at $19.30 at expi-
ration and you had written one of the calls. What is your proﬁt? Answerf s) submitted: $0 -$0.50
-$2 .50
-$l.52 (score 0.75) 2. (1 point) Consider the following three European call options, all expir-
ing in one year. Option A has strike $11.00; Option B has strike
$15.00; Option C has strike $19.00. (a) Create a bull spread from options A and B, and graph
its payout as a function of ST. List the (x,y) coordinates of the
points where the payoﬁ function is not linear. Note: Your answer should be in the form of a coordinate pair , e.g. (123.45, 678.90). Do not include dollar symbols ($) in your solution. (b) Create a bear spread from options B and C, and graphs
its payoff as a function of ST. List the (icy) coordinates of the
points where the payoff function is not linear. Note: Your answer should be in the form of a coordinate pair
, e.g. (123.45, 678.90). Do not include dollar symbols ($) in
your solution. (c) Create a butterfly spread from options A, B and C, and graphs its payoff as a function of ST. List the (x,y) coordinates
of the points where the payoff function is not linear. Note: Your answer should be in the form ofa coordinate pair
, eg. (123.45, 678.90). Do not include dollar symbols ($) in
your solution. Answerf s) submitted: (incorrect) 3. (1 point) Assume all rates are per annum continuously compounded Consider the following three European call options, all ex-
piring in one year. Option A has strike $20.00 and premium
$7.00; Option B has strike $27.00 and premium $4.00; Option
C has strike $34.00 and premium $2.00. Suppose the price on
the stock today is $27.00. (a) Which call(s) is(are) in-the—money? c A. OptionA
o B. Option B
o C. Option C c D. None of the above
(b) Which call(s) is(are) out-of-the-money‘?
o A. Option A o B. Option B
o C. Option C o D. None of the above (C) Suppose the risk-free rate is 3.5 Amwerfs) submitted: IA
DC
I (incorrect) Assume all rates are per annum continuously compounded.
Assume no arbitrage. A ﬁnancial derivative is guaranteed to be worth $150.00 in
23 months. Assume the risk-free rate is 5.2 (a) What is the derivative worth today?