Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4 . Johnson Mining Company ( JMC ) , primarily mines gold, and is currently trading at $ 5 4 . 5 5 / share

4. Johnson Mining Company (JMC), primarily mines gold, and is currently trading at $54.55/share. The CEO of the company suddenly dies, and no one is sure what affect this will have on the company in the short term. Assume a 2% annual interest rate. The following options are available. (3 points)
Spot Expiration Call Price Strike Price Put Price
$54.553 Months $12.79 $50.00 $ 6.28
$54.553 Months $10.49 $55.00 $ 8.78
$54.553 Months $ 8.57 $60.00 $11.66
a. Describe exactly how you would create a bottom straddle using the above options, and what your initial cost per share would be for this position.
b. Draw a profit diagram of your position. Clearly indicate all breakeven points, and intercepts.
c. Describe exactly how you would create a bottom strangle using the above options, and what your initial cost per share would be for this position
d. Draw a profit diagram of your position. Clearly indicate all breakeven points, and intercepts.
e. The price barely changes and JMC is now $55.42. What is your profit per share in each position above?
f. What if instead the price moves to $61.00? What is your profit per share in each position above?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Project Financing Financial Instruments And Risk Management

Authors: Frank J Fabozzi, Carmel De Nahlik

1st Edition

9811231494, 9789811231490

More Books

Students also viewed these Finance questions

Question

=+3. (a) Name and describe the five elements ofinternal control,

Answered: 1 week ago