Option Hull Answer Sheet

CHAPTER 8 Mechanics of Options Markets N otes for the Instructor This chapter provides information on how picks markets work. 1 usually go through the chapter fairly speedily leave students to read the details for themselves. Points 1 spend snip on are the payoffs from the four pick positions and how the terms of survivals vary when at that place are dividends and inception splits. There is less(prenominal) material on employee bear options in this chapter than before. This is because there is straight a unit chapter (Chapter 14) devoted to this topic. Problems 8..24 and 8.26 work well for clan discussion. Problems 8.23 and 8.25 can be used as assignment questions. QUESTIONS AND PROBLEMS Prohlp n1 ~? -L An investor buys a European mystify on a share for $3. The hackneyed-taking value is $42 and the strike monetary value is $40. Under what chance does the investor nock a pro? t? Under what destiny wil1 the option be ?ercised? Draw a diagram show the int erlingual rendition of the investors professorìt with the stock bell at the maturity of the option. The investor makes a arrive at if the price of the stock on the expiration project is less than $37. In these component part the gain from exercising the option is greater than $3. The option leave be exercised if the stock price is less than $40 at the maturíty of the option.

The variation of the invest? s net income with the stock price in Figure 88. 1. Problern 8.2. An investor sells a European call on a share for $4.. The stock price is $47 and the strike price is $50. Under what circumstances does the investor make a profìt? Under what circumstances wil1 the option be exerc ised? Draw a diagram showing the variation o! f tlle investors pro? t with tl1e stock price at the matur?y of the option. The investor makes a profit if the price of the stock is below $54 on the expiration date. If the stock price is below $50 , the option will non be exercised , and the investor makes a profit of $4. If the stock price is in the midst of $50 and $54 , the option is exercised...If you want to get a full essay, order it on our website: OrderEssay.net

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