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David Agbo is considering buying ten call options on Swiss franc on the Philadelphia Stock Exchange at a strike price of 54 cents per pound. The contract size is SF62, 500. The option will expire in three months. The premium is 2.0 cents per pound. Ignore
the brokerage cost. The spot rate is currently $.5400/SF and the three-month forward rate is $.5525/SF. David Agbo believes that the most likely range for the spot pound in three months will be a low of $.5000/SF to a high of $.6200/SF, but the most likely value
will be $.5900/SF.
(a) Diagram the
(b) Calculate what he would gain or lose at his expected range of future spot prices and at his expected future spot price.
(c) Calculate and show on the diagram the breakeven future spot price.
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- There is a European put option on a stock that expires in two months. The stock price is $93 and the standard deviation of the stock returns is 68 percent. The option has a strike price of $101 and the risk-free interest rate is an annual percentage rate of 7 percent. What is the price of the put option today? Use a two-state model with one-month steps. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)Melbourne Capital Ltd considers selling European call options on ANZ Bank Ltd for$1.50 per option. The current market price is $17.70 on 28th September 2020, theexercise price is $20, and the maturity of each call option is 6 months. Under what circumstances does the investor make a profit? Under what circumstances will the option be exercised? How many call options should the investor sell to raise a total capital of$1,260,000?The price of Bobco stock is currently $60. In one year, the price will either be s66 or $54. If the one-year risk free rate of interest is 6%, what is the price of a Bobco call option with an exercise price of $61? Recall, you will want to set 66N - 1.06B = 5 as one of the equations you need to solve this problem. You will need to figure out the other equation, then use both equations to solve for N and B. Then, you will price the portfolio of N shares less the amount borrowed. Round your answer to nearest cent. $6 $60 $54
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