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Please construct a stude guide of the following: 1. Know the definitions, payoff/profit formulas and payoff/profit tables of the following from both the long position
Please construct a stude guide of the following:
1. Know the definitions, payoff/profit formulas and payoff/profit tables of the following from both the long position and the short position. You will not be asked to graph payoffs/profits, but sometimes it helps answer the questions. (See the payoff formulas on page 2 of this document) a. Stock/stock index b. Bond (zero-coupon) this is same as cash. Short bond = borrowed cash c. Forward d. Call option e. Put option 2. Understand the effect of the time value of money in calculating profit equations using continuously compounded interest rates. Profit = Payoff - FV(Cost) 3. Know how to calculate profits on forward contracts, both from the long position and short position. Be able to calculate ending prices, given information about the profit of a forward contract. 4. Know how the above can be combined to get other financial instruments. For example: call spread, butterfly spread, straddle, etc. (You don't need to know the names of these combinations/strategies) 5. For a portfolio of financial assets be able to determine: the breakeven points, maximum profit, minimum profit, profit for given ending stock prices, etc. 6. Understand the put-call parity relationship for stocks with no dividends, and how it can be used to determine prices of one instrument in terms of other instrumentsStep by Step Solution
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