Home/Class Work 2 Spring 2020 Exercises from Chapter 1. 1.3. What is the difference between (a) entering into a long futures contract when the futures price is $50 and (b) taking a long position in a call option with a strike price of 550? 1.4. An investor enters into a short forward contract to sell 100.000 British pounds for U.S. dollars at an exchange rate of 1.4000 U.S. dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.3900 and (b) 1.4200? 1.5. Suppose that you write a put contract with a strike price of $40 and an expiration date in three months. The current stock price is S41 and one put option contract is on 100 shares. What have you committed yourself to? How much could you gain or lose? 1.6. You would like to speculate on a rise in the price of a certain stock. The current stock price is $29 and a three-month call with a strike price of $30 costs $2.90. You have $5,800 to invest. Identify two alternative strategies. Briefly outline the advantages and disadvantages of cach. 1.8. Suppose you own 5.000 shares that are worth $25 cach. How can put options be used to provide you with insurance against a decline in the value of your holding over the next four months? LII. A cattle farmer expects to have 120.000 pounds of live cattle to sell in three months. The live-cattle futures contract on the Chicago Mercantile Exchange is for the delivery of 40.000 pounds of cattle. How can the farmer use the contract for hedging? From the farmer's viewpoint, what are the pros and cons of hedging? 1.13. Suppose that a March call option on a stock with a strike price of $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a gain? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price of the maturity of the option 1.16. An investor writes a December put option with a strike price of $30. The price of the option is 54. Under what circumstances does the investor make a gain