THANK YOU!

6) Explain how this statement can be true: A long call position offers potentially unlimited gains if the underlying assets price rises but a xed, maximum loss if the underlying assets price drops to zero.

14) What is the relationship between a cap and an option?

15) Rogers Asset Management, a money management rm, entered into a four-year agree- ment with Merrill Lynch. The terms of the agreement specify that if the annual return realized by the German stock index, the DAX, is greater than 15% for the year ending December 31, Rogers Asset Management agrees to pay Merrill Lynch the excess over 15%. Merrill Lynch agrees to pay Rogers Asset Management $300,000 each year. The notional amount for this agreement is $90 million.

a. What type of agreement is it?

b. Who is the buyer of this agreement?

c. Who is the seller of this agreement?

d. What is the strike price?

e. If the actual return on the DAX in the rst year of this agreement is 24%, how much will Rogers Asset Management pay Merrill Lynch?