Question 1: An investor buys a European put on a share for $3. The stock price is currently $42 and the strike price is $40. When does the investor make a profit?
Question 2: Suppose a European call option to buy a share for $120.00 costs $6.00. The stock currently trades for $118.00. If the option is held to maturity under what conditions does the holder of the option make a profit? Note: ignore time value of money.
Question 3: The market price of ZYX stock has been volatile and you expect that volatility to continue for a few weeks based on recent news. Due to this belief you decide to purchase calls and puts to manage your exposure. You purchase a one-month call option with a strike price of $25 and an option price of $1.30. You also purchase a one-month put option with a strike price of $25 and an option price of $0.50. What will be your total profit or loss on these option positions if the stock price is $26.0 on the day the options expire?
Question 4: Use two-state option pricing model to find the value of a call option and the intrinsic value given the following parameters:
T-bills yield: 2.5 pct.
Current stock price: $32.00
No possibility stock will be worth less this amount in one year: $30.00
Exercise Price: $27.00
Question 5: Given the following option quote information:
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Given the following option quote information:
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Calls
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Puts
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Option and NY Close
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Expiration
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Strike Price
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Volume
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Last
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Volume
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Last
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XYZ
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February
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108
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85
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7.55
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40
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0.60
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March
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108
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61
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8.55
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22
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1.55
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|
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May
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108
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22
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10
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11
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2.85
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|
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August
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108
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3
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12.5
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3
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4.70
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The current stock price is $114.00 and the stock price on the expiration date is $141.00. How much is your options investment worth? (ignore commissions)
Question 6: Given the following parameters use put-call parity to determine the price of a put option with the same exercise price.
Current stock price: $22.00
Call option exercise price: $25.00
Sales price of call options: $3.80
Months until expiration of call options: 6
Risk free rate: 2.2 percent
Compounding: continuous
Question 7: Given the following parameters use risk-neutral valuation to value a call option.
Current stock price: $65.00
Stock will increase or decrease next year by: 15 pct.
Call Option strike price: $60.00
Time to expiration: 1 year
Risk free rate: 8 pct.
Question 8: A bond has 4 years to maturity, a coupon of 6 percent paid annually and currently sells at par. What is the duration of the bond?
Question 9: You have entered into a forward contract with the following parameters:
Bond: 10 year, zero coupon bond
Issuance: Will be issued in 1 year
Face Value: $1000
1 year spot rate: 3 pct.
10 year spot rate: 6 pct.
Question 10: Use Black Scholes to Value the put and call given the following criteria. The stock price six months from the expiration of an option is $13.50, the exercise price of the option is $13, the risk free interest rate is 10 percent per annum, and the volatility is 20% per annum.