an introduction to forwards and options

8/10/2019 An Introduction to Forwards and Options

1/4

Derivatives Markets, 3e(McDonald)

Chapter 2 An Introduction to Forwards and Options

2.1 Multiple Choice

1) The spot price of the market index is $900. A 3month for!ard contract on this index is pricedat $930. "hat is the profit or loss to a short position if the spot price of the market index rises to$920 # the expiration date%A) $20 &ain') $20 lossC) $10 &ain() $10 lossAns!er C

2) The spot price of the market index is $900. A 3month for!ard contract on this index is pricedat $930. The market index rises to $920 # the expiration date. The annual rate of interest on

treasuries is 2.*+ ,0.2+ per month). "hat is the difference in the paoffs #et!een a lon& indexin-estment and a lon& for!ard contract in-estment% ,Assume monthl compoundin&.)A) $10.*') $2*./9C) $2.*0() $*3.20Ans!er '

3) The spot price of the market index is $900. A 3month for!ard contract on this index is pricedat $930. The annual rate of interest on treasuries is 2.*+ ,0.2+ per month). "hat annualied rateof interest makes the net paoff ero% ,Assume monthl compoundin&.)

A) *.+') ./+C) 11.2+() 13.2+Ans!er (

*) The spot price of the market index is $900. After 3 months the market index is priced at $920.An in-estor has a lon& call option on the index at a strike price of $930. After 3 months !hat isthe in-estors profit or loss%A) $10 loss') $0C) $10 &ain() $20 &ainAns!er '

1

Copri&ht 4 2013 5earson 6ducation 7nc.


2/4

/) The spot price of the market index is $900. After 3 months the market index is priced at $920.The annual rate of interest on treasuries is 2.*+ ,0.2+ per month). The premium on the lon& put!ith an exercise price of $930 is $.00. "hat is the profit or loss at expiration for the lon& put%A) $2.00 &ain') $2.00 loss

C) $1.9/ &ain() $1.9/ lossAns!er C

) The spot price of the market index is $900. After 3 months the market index is priced at $920.The annual rate of interest on treasuries is 2.*+ ,0.2+ per month). The premium on the lon& put!ith an exercise price of $930 is $.00. At !hat index price does a lon& put in-estor ha-e thesame paoff as a short index in-estor% Assume the short position has a #reake-en price of $930.A) $921.90') $930.00C) $93.0/() $9*0.00Ans!er C

8) All of the positions listed !ill #enefit from a price decline exceptA) hort put') :on& putC) hort call() hort stockAns!er A

) The spot price of the market index is $900. The annual rate of interest on treasuries is 2.*+,0.2+ per month). After 3 months the market index is priced at $920. An in-estor has a lon& calloption on the index at a strike price of $930. "hat profit or loss !ill the !riter of the call optionearn if the option premium is $2.00%A) $2.00 &ain') $2.00 lossC) $2.01 &ain() $2.01 lossAns!er C

9) The spot price of the market index is $900. After 3 months the market index is priced at $91/.The annual rate of interest on treasuries is 2.*+ ,0.2+ per month). The premium on the lon& put!ith an exercise price of $930 is $.00. Calculate the profit or loss to the short put position if the

final index price is $91/.A) $1/.00 &ain') $1/.00 lossC) $.9/ &ain() $.9/ lossAns!er (

2



3/4

10) 7f our homeo!ners insurance premium is $1000 and our deducti#le is $2000 !hat could#e considered the strike price of the polic if the home has a -alue of $120000%A) $11000') $120000C) $118000

() $122000Ans!er A

11) A put option is purchased and held for 1 ear. The 6xercise price on the underlin& asset is$*0. 7f the current price of the asset is $3.*/ and the future -alue of the ori&inal option premiumis ,$1.2) !hat is the put profit if an at the end of the ear%A) $1.2') $1.93C) $3.//() $/.18Ans!er '

12) The premium on a lon& term call option on the market index !ith an exercise price of 9/0 is$12.00 !hen ori&inall purchased. After months the position is closed and the index spot priceis 9/. 7f interest rates are 0./+ per month !hat is the Call 5aoff%A) $2.*') $12.00C) $12.3() $1/.00Ans!er (

13) The premium on a call option on the market index !ith an exercise price of 10/0 is $9.30!hen ori&inall purchased. After 2 months the position is closed and the index spot price is1082. 7f interest rates are 0./+ per month !hat is the Call 5rofit%A) $9.30') $9.39C) $12.1() $22.00Ans!er C

2.2 hort Ans!er 6ssa ;uestions

1) The spot price of the market index is $900. A 3month for!ard contract on this index is pricedat $930. (ra! the paoff &raph for the short position in the for!ard contract.

Ans!er

3



4/4

2) An in-estor has a lon& call option on the market index at a strike price of $930. At expirationthe index price is $920. 6xplain the profit and loss.Ans!er The lon& call in-estor has the ri&ht not the o#li&ation to exercise. Thus she !ill electto let the option expire unexercised and realie no profit or loss.

3) The spot price of the market index is $900. After 3 months the market index is priced at $920.The annual rate of interest on treasuries is *.+ ,0.*+ per month). The premium on the lon& put!ith an exercise price of $930 is $.00. (ra! the paoff &raph for the lon& put position atexpiration. 7nclude strike price #reake-en price and max loss.Ans!er

*) (e-elop the paoff ta#le for the pre-ious

an introduction to forwards and options

Documents