You have the following information today! The spot market value of the S&P 500 index today is 5o = 4,381. Put options on the S&P 500 index with a strike price of K - 4375 and 12 months to expiration have a premium of p - $541.18 The continuously compounded, annualized risk-free rate is 1.60% per annum. Suppose that you are a financial advisor. Your client, Ms. Moneypenny, plans to retire this month. You have warned her about sequence of returns risk. However, she still wants to hold a significant proportion of the retirement portfolio in a diversified portfolio of large cap stocks and has agreed to your proposal to construct a protective put on the equity portion of the portfolio For the sake of this problem, suppose that Ms. Moneypenny's stocks currently are worth $100 times the spot market value of the S&P 500 index today Now "jump ahead" in time to about one year in the future when the put option expires. Suppose that the stock market had a major correction and the S&P 500 index has fallen to 3,155. What is the strategy profit or loss? HINT: recall that we can think of the index value as if it were a share price. We can think of the index multiplier as if it were number of shares underlying the index call option. Do not round values at intermediate steps in your calculations. Enter your answer in dollars, but omit the $ symbol and commas. For example, enter $1.234 as 1234 as your answer. If your answer is a loss, then enter the value with a minus sign, for example. -1234 Today is late January. You currently hold 100 shares of Bank of America common stock in your taxable brokerage account. You have the following information: all prices are per share. Bank of America's stock price: $34.20. March puts on Bank of America's common stock with a strike price of K = $34 have an underlying asset of 100 shares of stock and a premium of P - $1.20. Time to expiration of the option is approximately seven weeks, i.e.. T 7/52 year, Bank of America's next ex dividend date is in April and thus may be ignored, The continuously compounded, annualized risk-free rate is 0.26% You establish a protective put for your Bank of America stock. What is the strategy payoff per share if the stock price at expiration of the put is $40 per share? (Assume that all positions are held open until expiration) $34,00 O $35.40 O $40.00 $41.20 O $5.80 Today is January. You take a short position in 100 shares of Google common stock at a share price of $600. You would like protection from the risk that Google's stock price might rise rather than fall as you forecast. Suppose that you decide to "fully insure your short sale over the next five months by buying a June call option with a strike price of K - $600. You have the following information (all prices are per share). . . Google's stock price today: $600. Google does not pay dividends. June call options on Google common stock with a strike price of K - $600 have a premium of c - $39,85 per share Time to expiration is approximately five months; hence, T.5/12 year. The continuously compounded, annualized risk free rate is 0.46%. At expiration of your call option, Google's share price is $700. What is your profit for loss) per share? Assume a margin requirement of 50%. Choose the best answer. Assume that all positions are held open until expiration.) Gain of $62 per share, Loss of $84 per share. Loss of $100 per share O Gain of $100 per share, Loss of $38 per share
