Assume a three$-$month call with a strike price of $$20$ and a three$-$month put with a strike price of $$18$ cost $$2$ and $$1$ respectively. If a trader uses these options to buy a "strangle", the two values of the underlying asset at which a trader will breakeven upon expiry of the options are:

A$.$ $$19$ and $$22$

B$.$ $$17$ and $$21$

C$.$ $$15$ and $$23$

D$.$ $$16$ and $$22$

A one month European put option on a non$-$dividend paying stock is currently selling for $$2.$ The stock price is $$17\mathrm{.}50$ and the strike price is $$20.$ Assume the risk free rate of interest is zero. What should an arbitrageur do to make a risk free profit?

A$.$ buy the stock and buy the put option.

B$.$ sell the stock short and buy the put.

C$.$ buy the put and sell a call with the same strike price.

D$.$ sell the put and buy the stock.

Solution:

Answer:

The premium for a June $2023$ put option would be:

A$.$ higher than that for a September $2023$ put option with same strike price.

B$.$ lower than that for a September $2023$ put option with same strike price.

C$.$ the same as that for a September $2023$ put option with same strike price.

D$.$ the same as a June call option with the same strike price.

Iswer:

Solution:

$5.$

Find the upcoming net payment in a plain vanilla interest rate swap in which the fixed party pays $10$ percent and the floating rate for the upcoming payment is $9\mathrm{.}5$ percent; the notional principal is $$20$ million; payments are based on the assumption of $180$ days in the payment period and $360$ days in a year.

A$.$ fixed payer pays $$100,000.$

B$.$ floating payer pays $$950,000.$

C$.$ floating payer pays $$50,000.$

D$.$ fixed payer pays $$50,000.$

FDI $-$ Page $2$