Exam 20: An Introduction to Derivative Markets and Securities

Exhibit 20.5 Use the Information Below for the Following Problem(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -Refer to Exhibit 20.5.What is Sarah's annualized gain/loss?

The futures market is a dealer market where all the details of the transactions are negotiated.

A call option is in the money if the current market price is above the strike price.

A put option is in the money if the current market price is above the strike price.

The payoffs to both long and short position in the forward contact are symmetric around the contract price.

A cash or spot contract is an agreement for the immediate delivery of an asset such as the purchase of stock on the NYSE.

A primary function of futures markets is to allow investors to transfer risk.

In the two state option pricing model,which of the following does not influence the option price?

Exhibit 20.5 Use the Information Below for the Following Problem(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -Refer to Exhibit 20.5.If at expiration Peppy is selling for $47.00,what is Sarah's dollar gain or loss?

Assume that you have purchased a call option with a strike price $60 for $5.At the same time you purchase a put option on the same stock with a strike price of $60 for $4.If the stock is currently selling for $75 per share,calculate the dollar return on this option strategy.

Exhibit 20.6 Use the Information Below for the Following Problem(S) The current stock price of ABC Corporation is $53.50. ABC Corporation has the following put and call option prices that expire 6 months from today. The risk-free rate of return is 5% and the expected return on the market is 11%. Exprcisp Price Put Price Call Price 50 \ 1.50 \ 5.75 55 \ 3.25 \ldots -Refer to Exhibit 20.6.How could an investor create arbitrage profits?

Forward contracts are much easier to unwind than futures contracts due to the standardization of the contracts.

A one year call option has a strike price of 60,expires in 6 months,and has a price of $2.5.If the risk free rate is 7%,and the current stock price is $55,what should the corresponding put be worth?

According to put/call parity

Which of the following statements is false?

Which of the following statements is a true definition of an out-of-the-money option?

Consider a stock that is currently trading at $45.Calculate the intrinsic value for a call option that has an exercise price of $35.

Which of the following is consistent with put-call-spot parity?

An equity portfolio manager can neutralize the risk of falling stock prices by entering into a hedge position where the payoffs are

All features of a forward contract are standardized,except for price and number of contracts.