Question
The current spot price of a stock is $100 per share, and the risk-free rate is 5%. The stock pays no dividends and costs nothing
The current spot price of a stock is $100 per share, and the risk-free rate is 5%.
The stock pays no dividends and costs nothing to store.
The forward price is $105.
An investor buys a one-year European-style call option on the same stock.
The strike is $110, and the premium is $5.
Complete the following table of payoffs from the long call position.
Spot price at Payoff, excluding Payoff, including
time 1 (S1) premium premium
$90 $0 - $5
$95 __________ ___________
$100 __________ ___________
$105 __________ ___________
$110 __________ ___________
$115 __________ ___________
$120 __________ ___________
$125 + $15 + $10
What is the price at which the investor breaks even after paying the call premium?
The breakeven on the call, including premium, is S1 = __________
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The Selected Works Of George J. Benston Banking And Financial Services Volume 1
Authors: James D. Rosenfeld
1st Edition
0195389018, 0199745471, 9780199745470
