a) What distinguishes a derivative security, such as a forward, futures, or option contract, from more...

 

Transcribed Image Text:

a) What distinguishes a derivative security, such as a forward, futures, or option contract, from more fundamental securities, such as stocks and bonds? b) Briefly outline what are forward and futures contracts. c) Outline the differences between: 1. II. Futures and Forward contracts Options and Futures contracts d) You are given the information outline in the table below. PUT OPTION STRIKE PRICE $40 CALL OPTION $70 OPTION PREMIUM (PRICE PER OPTION) $3 $6.25 (1 marks) (2 marks) (2 marks) (1 marks) 1. Using the information from the table draw the payoff diagram for an investor that wants a long position of 100 call options. (2 marks) 11. Using the information from the table draw the payoff diagram for an investor that wants a long position of 100 put options. III. (2 marks) If the value of the underline at the maturity of the contract is $80 calculate the profit to the writer of 100 put options. (2 marks) e) You are an investment analyst for a small portfolio. The investment manager asked you to call upon your knowledge of options and the put call parity. He wants you to build a portfolio. position of stocks and derivatives that has a guaranteed rate of return regardless of what happens in the market. 1. Indicate the components of this portfolio. (2 marks) II. Indicate what you expect the guaranteed rate of return to be on this portfolio position. (1 mark) a) What distinguishes a derivative security, such as a forward, futures, or option contract, from more fundamental securities, such as stocks and bonds? b) Briefly outline what are forward and futures contracts. c) Outline the differences between: 1. II. Futures and Forward contracts Options and Futures contracts d) You are given the information outline in the table below. PUT OPTION STRIKE PRICE $40 CALL OPTION $70 OPTION PREMIUM (PRICE PER OPTION) $3 $6.25 (1 marks) (2 marks) (2 marks) (1 marks) 1. Using the information from the table draw the payoff diagram for an investor that wants a long position of 100 call options. (2 marks) 11. Using the information from the table draw the payoff diagram for an investor that wants a long position of 100 put options. III. (2 marks) If the value of the underline at the maturity of the contract is $80 calculate the profit to the writer of 100 put options. (2 marks) e) You are an investment analyst for a small portfolio. The investment manager asked you to call upon your knowledge of options and the put call parity. He wants you to build a portfolio. position of stocks and derivatives that has a guaranteed rate of return regardless of what happens in the market. 1. Indicate the components of this portfolio. (2 marks) II. Indicate what you expect the guaranteed rate of return to be on this portfolio position. (1 mark)

Answer rating: 100% (QA)

Answer a The main distinction between derivative securities such as forward futures or option contracts and fundamental securities like stocks and bon... View the full answer