Answer the 3 short answer/essay problem.Subject is Finance (options valuation).

Question 26. Assume you are faced with an opportunity made up of three equally likely outcomes. If the first outcome occurs, you receive $30. If the second outcome occurs, you receive no money. If the third outcome occurs, you must pay out $3. Given that you can be characterized as risk neutral, how much would you pay to take this risk? Would you be willing to pay more or less for this opportunity? Explain. Question 29. Explain how you could achieve the same or similar results of short selling a stock without using equities. What set of investments would allow you to replicate the same type of upside and downside exposure? Question 32. In considering either a covered call or a protective put: a) Why would you use one versus the other to protect against an existing equity holding? How do each behave in a bullish or bearish market (or stock movement)? What factors will affect the decision to choose one versus another? FOUND ONLINE SIMILAR to 26 : Assume that you are faced with an opportunity made up of three equally likely outcomes. If the first outcome occurs, you receive $10. If the second outcome occurs, you receive no money. If the third outcome occurs, you must pay out $1. Given that you can be characterized as risk neutral, how much would you pay to take this risk? Would you be willing to pay more or less for this opportunity? Explain Answer: Given that the intrinsic value of this opportunity is equal to $3, over time, the likelihood of outperforming this $3 payout is unlikely. Being risk-neutral, I would not pay more than $3, but would happily pay less than $3. Question: Identify and briefly discuss the various types of option transaction costs. How do these costs differ for market makers, floor brokers, and firms trading in the over-the-counter market? Answer: Floor trading and clearing fees run from $0.50 to $1.00. These represent the costs of paperwork involved in processing the trade as well as the exchange's overhead. Commissions, which reflect the cost of the labor involved in arranging the trade, vary and depend on the type of broker (discount or full service). The bid-ask spread is the cost of providing liquidity to the market. The public and floor brokers representing the public incur all of these costs while market makers incur floor trading and clearing fees and may incur the bid-ask spread if they have to deal with other market makers instead of the public. Transactions in the OTC market do not generally incur commissions and floor trading and clearing fees. They do incur costs of paperwork and, in particular, the legal expenses of laying out the rights of each party. Since transactions in the OTC market are generally executed through dealers, they incur the dealer's bid-ask spread