Get a unique, high-quality and non-plagiarized paper from us today at the most affordable price
Email us : premieredtutorials@gmail.com

Suppose you enter into a long 6-month forward position at a forward price of $60. What is the payoff in 6 months for prices of $50, $55, $60, $65, and $70?


Forwards and Options (70 Points)Respond to each of the following questions (notice that there are main questions and sub-questions below some of the main questions – don’t miss any!)
1.Suppose you enter into a long 6-month forward position at a forward price of $60. What is the payoff in 6 months for prices of $50, $55, $60, $65, and $70?
2.Suppose that instead you buy a 6-month call option with a strike price of $60. What is the payoff in 6 months at the same prices for the underlying asset?
3.Comparing the payoffs of parts (a) and (b), which contract should be more expensive (i.e., the long call or long forward)? Why is this so?
4.Suppose you enter into a short 6-month forward position at a forward price of $60. What is the payoff in 6 months for prices of $50, $55, $60, $65, and $70?
5.Suppose you buy a 6-month put option with a strike price of $60. What is the payoff in 6 months at the same prices for the underlying asset?
6.Comparing the payoffs of parts (a) and (b), which contract should be more expensive (i.e., the long put or short forward)? Why is this so?
7.Use the following premiums for S&P options with 6 months to expiration:

Strike Call Put
$950 $120.405 $51.777
1000 93.80974.201
1020 84.47084.470
1050 71.802101.214
1107 51.873137.167

Assume you buy a 1,000-strike S&P call, sell a 1050-strike S&P call, sell a 1,000-strike S&P put, and buy a 1050-strike S&P put.

a. Using a table, verify that there is no S&P price risk in this transaction.

b. What is the initial cost of the position?

c. What is the value of the position after 6 months?

d. What is the implicit interest rate in these cash flows over 6 months?
8.Here is a quote from an investment website about an investment strategy using options:

One strategy investors are applying to the XYZ options is using “synthetic stock.” A synthetic stock is created when an investor simultaneously purchases a call option and sells a put option on the same stock. The end result is that the synthetic stock has the same value, in terms of capital gain potential, as the underlying stock itself. Provided the premiums on the options are the same, they cancel each other out so the transaction fees are a wash. (as cited in McDonald, 2013, question 3.19)

Suppose, to be concrete that the premium on the call you buy is the same as the premium on the put you sell, and both have the same strikes and times to expiration.

a. What can you say about the strike price?

b. What term best describes the position you have created? What is the shape of the profit diagram?

c. Suppose the options have a bid-ask spread. If you are creating a synthetic purchased stock and the net premium is zero inclusive of the bid-ask spread, where will the strike price be relative to the forward price?

d.If you create a synthetic short stock with zero premium inclusive of the bid-ask spread, where will the strike price be relative to the forward price?

e. Do you consider the “transaction fees” to really be “a wash”? Why or why not?

Complete your response in 3-5 pages using Microsoft Word or Excel. For calculations, you must show work to receive credit. Your well-written response should be formatted according to CSU-Global Guide to Writing and APA Requirements, with any sources properly cited. Upload your completed work to the Module 2 folder.

Place your order now for a similar paper and have exceptional work written by our team of experts to guarantee you A Results

Why Choose US

6+ years experience on custom writing
80% Return Client
Urgent 2 Hrs Delivery
Your Privacy Guaranteed
Unlimited Free Revisions

How to Place an Order 

Send the assignment details such as the instructions, due date/deadline, number of pages and college level to the customer support agent online on live chat,  fill in the assignment details at place an order or send the information to our email address premieredtutorials@gmail.com and a customer support agent will respond to you immediately. 

Once you place your order, we choose for you the best and competent writer for your assignment based on each writer’s competence in handling a subject. 

When the homework is completed, we have a quality assurance team that proofreads the assignment to ensure it meets the required rubric instructions from your professor.

After thorough review of your assignment, we send the paper to the client. In case you need any changes at this point, you can let us know so that we can handle it for you at no extra charge. 

Homework Help Website

Why we should write your Paper 

  1. Money Return guarantee
  2. 0% Plagiarism Rate
  3. Guaranteed Privacy
  4. Written from scratch by highly qualified writers 
  5. Communication at Any Time (24/7)
  6. Flexible Pricing and Great Discount Programs
  7. Timely Deliveries
  8. Free Amendments
Looking for a similar assignment and in urgent need for help? Place your order and have excellent work written by our team of professionals to ensure you acquire the best grades.

  We are here to assist you.

 

Statistics about Us

130 New Projects
235 Projects in Progress
315 Inquiries
420 Repeat clients

© 2021 Premiered Tutorials
All rights reserved. We provide online custom written papers, such as term papers, research papers, thesis papers, essays, dissertations and other custom writing services.

All papers inclusive of research material are strictly intended to be used for research and study purposes only. Premiered Tutorials does not support or condone plagiarism in any form. These custom papers should be used with proper reference.

Place an Order
error: Content is protected !!