hello,

I have certain questions in Finance ( Stock options). Can you please help me in getting the answers with solution.

Thanks

Jerry

Professor Gopala Vasudevan Fin 690 Fall 2015 Charlton College of Business EXAM 2 (Take home) I am not allowed to seek help from other persons. I understand that the use of outside help can result in my failing the course. NAME:____________________________________________________________ STUDENT ID_______________________________________________________ Signature:___________________________________________________________ This is due on November 18, 2015 in class. Late Submissions will not be accepted. 1 EXAM 2 (TAKE HOME PART) USE THE INFORMATION GIVEN BELOW TO ANSWER QUESTIONS 1-2. The Wall Street Journal reported the following prices for Microsoft options for trading on Friday, February 7 2010. The stock itself closed at $50.75. Calls (Prices in $) Strike Price February March April July 45 6.625 7.5 8 10.5 50 2.8125 4.75 5.875 55 1.0625 2.625 3.75 6 60 0.4375 1.3125 1.875 4.25 65 0.1875 0.625 1.25 70 0.0625 Puts (Prices in $) Strike Price March April July 45 1 1.8125 2.625 4.25 50 2.375 4 5 55 5.375 7.625 8.125 60 9.75 10.875 12.5 65 15.5 16.5 16.75 70 1) February 20.75 8.75 If the risk free rate of interest (continuously compounded) is 5%, then does putcall parity hold for the April options with X=K=$50, and X=K=$65 (calculations based on 71 days to maturity, 365 day year)? 6 points 2 2a) Construct a payoff diagram for buying a $50 April call option on Microsoft. Construct the diagrams for net payoffs, i. e. after deducting the option premium. 3 points 2b) Construct a payoff diagram for writing a $50 April call option on Microsoft and for writing a $50 April put option (combined). Construct the diagrams for net payoffs, i. e. after adding the option premium. 6 points 3) For a call option on a non dividend paying stock the stock price is $30, the strike price is $20, the risk free rate is 6% per annum, the volatility is 20% per annum and the time to maturity is 3 months. Use the Binomial model to find: a) The price of the call option? 6 points 4) Consider a call option on a stock selling for $30 per share with a $32 exercise price. The stock's standard deviation is 36% per year; the option matures in 6 months; and the risk-free interest rate is 4% per year. a) Find the risk neutral probability assuming 3 months for each step. 6 points b) Find the call price 3 points c) Find the put price? 3 points 5) You bought 100 Google Shares for $400. You also bought 1 put option on Google with a strike of $395 for $20. a) b) c) What is the maximum loss on your position? 3 points What is the profit on your position when the stock hits $440? 3 points Draw the profit/loss diagram for this position clearly marking the maximum loss, and breakeven . 6 points 6) You bought 1000 Google Shares for $400. You also sold call options on Google with a strike of $435 for $20. a) b) c) What is the maximum profit on your position? 3 points What is the profit on your position when the stock hits $440? 3 points Draw the profit/loss diagram for this position clearly marking the max loss and the maximum profit. 6 points \\ 3