The common stock of the XYZ Co. has been trading in a narrow range around $40 per share for months, and option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for How can you create a position involving a put, a call, and riskless lending that would have the same payoff str O Buy the call, sell the put; lend the present value of $40. Sell the call, buy the put; lend the present value of $40. Buy the call, sell the put; borrow the present value of $40. O Sell the call, buy the put; borrow the present value of $40.

The common stock of the XYZ Co. has been trading in a narrow range around $40 per share for months, and option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for How can you create a position involving a put, a call, and riskless lending that would have the same payoff str O Buy the call, sell the put; lend the present value of $40. Sell the call, buy the put; lend the present value of $40. Buy the call, sell the put; borrow the present value of $40. O Sell the call, buy the put; borrow the present value of $40.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You happen to be checking the newspaper and notice an arbitrage opportunity. The current stock price of Intrawest is $25 per share and the one-year risk-free interest rate is 3%. A one-year put on Intrawest with a strike price of $23 sells for $3.15, while the identical call sells for $6.13. Explain what you must do to exploit this arbitrage opportunity. (Select the best choice below.) OA. The strategy would be to sell the call option, buy the put and the stock, and borrow $22.33. The net benefit is $0.31. OB. The strategy would be to sell the call option, buy the put and the stock, and borrow $23. The net benefit is $0.31. OC. The strategy would be to sell the call option, buy the put and the stock, and borrow $22.33. The net benefit is $0.98. OD. The strategy would be to buy the call option, sell the put and the stock, and borrow $22.33. The net benefit is $0.31.
Suppose an investor sells 100 stocks by short selling for 6 months, the stock price is 30 yuan, and the annual interest rate of 6 months is fixed at 3%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 35 yuan or falls to 25 yuan after 6 months of hedging, what are the losses of this investor?
Suppose an investor buys 300 stocks for 3 months, the stock price is 10 yuan, and the annual interest rate for 3 months is fixed at 5%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 15 yuan or falls to 8 yuan after 3 months of hedging, what are the losses of this investor?
You happen to be checking the newspaper and notice an arbitrage opportunity.The current stock price of Gougou is $20 per share and the one-year risk-free interestrate is 8%. A one-year put on Gougou with a strike price of $18 sells for $3.33, whilethe identical call sells for $7. Explain what you must do to exploit this arbitrageopportunity
You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of $109 at year- end. XYZ currently sells for $109. Over the next year the stock price will increase by 12% or decrease by 12%. The T-bill rate is 6%. Unfortunately, no put options are traded on XYZ Co. a. Suppose the desired put option were traded. How much would it cost to purchase? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Cost to purchase b. What would have been the cost of the protective put portfolio? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Cost of the protective put portfolio c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X = 109? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put. (Do not round…
7. The stock of the Madison Travel Co. is selling for $28 a share. You put in a limit buy or-der at $24 for one month. During the month the stock price declines to $20, then jumpsto $36. Ignoring commissions, what would have been your rate of return on this invest-ment? What would be your rate of return if you had put in a market order? What ifyour limit order was at $18?
You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of $100 at year-end. XYZ currently sells for $100. Over the next year the stock price will increase by 10% or decrease by 10%. The T-bill rate is 5%. Unfortunately, no put options are traded on XYZ Co.a. Suppose the desired put option were traded. How much would it cost to purchase?b. What would have been the cost of the protective put portfolio?c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X = 100? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put.
Momo, a fast-growing company, will make an earnings announcement three months from now. But you do not know whether it will be positive or negative (i.e., the stock price will go up or down). The current price of the stock is $30 per share. A three-month call with an exercise price of $30 costs $5. A put with the same exercise price and expiration date costs $5. a. What would be a simple options strategy to bet on the stock price volatility?
The current market price for ABC is $70 per share. Initialmargin is 50%, maintenance margin is 35% and there is no margininterest. 1) You believe the stock price will decrease over the nextyear and wish to trade exactly one round lot. What trade should youmake ? How much margin would you have to post to youraccount ? At what price would you receive a margin call? 2) Suppose you are correct and the stock falls to $64 pershare at the end of the year. What is your percentage return onequity for this trade
Your broker has recommended that you purchase stock in Beacan, Inc. Beacan recently paid its annual dividend ($14.00). The firm also boasts an ROE of 15%, of which 50% is paid as dividends. Analysts estimate that the stock has a beta of 0.79. The current risk-free rate is 2.00% and the market return (RM) is 11.10%. Assuming that CAPM holds, what is the intrinsic value of this stock?
The common stock of the CGI Inc. has been trading in a narrow range around $35 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $35 is $2, and a call with the same expiration date and exercise price sells for $3. Suppose you write a strap ( = write 2 calls and write 1 put with the same strike price) and the stock price winds up to be $37 at contract expiration. What was your net profit on the strap? A. $200 B. $300 C. $400 D. $500 E. $700
Suppose you are bullish on stock SPYR. It is trading at $388.55 on September 19,2022, but you believe the price will rise in the near future. You put $20,000 towards thepurchase of 100 shares of stock SPYR and borrow the remaining cost from your broker. Yourbroker requires a maintenance margin level of 15%. What is the range of stock prices suchthat you receive a margin call? Assume the borrowing rate is zero regardless of the actualholding period. Round your answer to two decimal places. Detailed explanation using formulas, not excel. A. $221.82 or lowerB. $163.96 or lowerC. $235.29 or lowerD. $173.91 or lower

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