Question
Please show your work. The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6
Please show your work. The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices. Strike: 45, 50, 55 Call March: 6.84, 3.82, 1.89 Call June: 8.41, 5.58, 3.54 Put March: 1.18, 3.08, 6.08 Put June: 2.09, 4.13, 6.93 Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated. Answer questions 10 and 11 about a calendar spread based on the assumption that stock prices are expected to remain fairly constant. Use the June/March 50 call spread. Assume one contract of each. 10. What will the spread cost? 11. What will be the profit if the spread is held 90 days and the stock price is $45? Answer questions 16 through 17 about a long straddle constructed using the June 50 options. 16. Suppose the investor adds a call to the long straddle, a transaction known as a strap. What will this do to the breakeven stock prices? 17. Suppose a put is added to a straddle. This overall transaction is called a strip. Determine the profit at expiration on a strip if the stock price at expiration is $36. Answer questions 18 through 20 about a long box spread using the June 50 and 55 options. 18. What is the cost of the box spread? 19. What is the profit if the stock price at expiration is $52.50? 20. What is the net present value of the box spread? Show your work
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