Exam 2: An Introduction to Forwards and Options

The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The market index rises to $920 by the expiration date. The annual rate of interest on treasuries is 4.8% (0.4% per month). What is the difference in the payoffs between a long index investment and a long forward contract investment? (Assume monthly compounding.)

The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. Draw the payoff graph for the short position in the forward contract.

If your homeownerʹs insurance premium is $1,000 and your deductible is $2000, what could be considered the strike price of the policy if the home has a value of $120,000?

Which of the following phrases is used to describe an option where the strike price is approximately equal to the asset price?

The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. Calculate the profit or loss to the short put position if the final index price is $915.