Suppose that JPMorgan Chase sells call options on $1.10 million worth of a stock portfolio with beta = 1.45. The option delta is 0.52. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 200. a. How many dollars' worth of the market-index portfolio should it purchase? ✔ Answer is complete and correct. Market index portfolio Delta $ 829,400✔ . What is the delta of a put option? (Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.) ✔ Answer is complete and correct. (0.48)✔

Suppose that JPMorgan Chase sells call options on $1.10 million worth of a stock portfolio with beta = 1.45. The option delta is 0.52. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 200. a. How many dollars' worth of the market-index portfolio should it purchase? ✔ Answer is complete and correct. Market index portfolio Delta $ 829,400✔ . What is the delta of a put option? (Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.) ✔ Answer is complete and correct. (0.48)✔

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that JPMorgan Chase sells call options on $2.40 million worth of a stock portfolio with beta = 1.50. The option delta is 0.55. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 400. Required: How many dollars’ worth of the market-index portfolio should it purchase? What is the delta of a put option? Complete the following: Do number 1 and 3
Suppose that JPMorgan Chase sells call options on $2.40 million worth of a stock portfolio with beta = 1.50. The option delta is 0.55. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 400. Required: How many dollars’ worth of the market-index portfolio should it purchase? What is the delta of a put option? Complete the following:
Suppose that JPMorgan Chase sells call options on $1.25 million worth of a stock portfolio with beta = 1.5. The option delta is .8. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio.a. How many dollars’ worth of the market-index portfolio should it purchase to hedge its position?b. Now it decides to use market index puts to hedge its exposure. Should it buy or sell puts? How many? The index at current prices represents $1,000 worth of stock.
Consider a XYZ stock index spot price is 69 and 7-months forward price is 70. The continuously compounded dividend yield and risk-free interest rate are 3% and 5% respectively. Market maker could take arbitrage opportunity by (long/short) forward contract and (long/short) synthetic forward contract which includes (buying/selling) stock and (borrowing / lending ) money. So the profit at expiration time will be . (Please round your answer to 4 decimal places)
Suppose you have a stock market portfolio with a beta of 0.83 that is currently worth $725 million. You wish to hedge against a decline using index options. Describe how you might do so with puts and calls. Suppose you decide to use SPX calls. Calculate the number of contracts needed if the call option you pick has a delta of 0.30, and the S&P 500 index is at 3,270. Note: Do not round intermediate calculations. A negative value should be indicated by a minus sign. Round your answer to the nearest whole number. Number of option contracts
Suppose you have a stock market portfolio with a beta of 81 that is currently worth $580 million. You wish to hedge against a decline using index options. Describe how you might do so with puts and calls. Suppose you decide to use SPX calls. Calculate the number of contracts needed if the call option you pick has a delta of 30, and the S&P 500 Index is at 1,270. (Do not round intermediate calculations. A negative value should be indicated by a minus sign. Round your answer to the nearest whole number.) Answer is complete but not entirely correct. Number of option contracts 12,331
Assume that the risk-free rate is 2.5% and the market risk premium is 8%. What is the required return for the overall stock market? Round your answer to one decimal place. ? % What is the required rate of return on a stock with a beta of 0.5? Round your answer to one decimal place. ? % The above is a two part question, therefore the second answer is determined based off the first answer provided. Please, please, please do provide both answers.
(b) Write the equation of the Security Market Line (SML). Compute and draw the SML when the expected return of the NASDAQ index (market portfolio) is 17% and the return to the risk-free asset is 7% (c) Given the SML in (b), compute the beta and the expected return of the new share Facebook assuming the volatility of the NASDAQ index (market portfo- lio) is 23.86% and its covariance with the share is 0.0655. - (d) Facebook pays a dividend of 5 GBP and the growth of dividends is equal to 4% for the first two years and then rise to 6%. Assuming constant cost of capital as computed in point (c), estimate the price of the Facebook share. (e) Consider investing 20% of your wealth in the Facebook share with beta as in (c). What is the proportion you need to allocate to the Apple share with beta 1.8 in order to replicate the market portfolio? [
Suppose you have a stock market portfolio with a beta of .90 that is currently worth $783 million. You wish to hedge against a decline using index options. Describe how you might do so with puts and calls. Suppose you decide to use SPX calls. Calculate the number of contracts needed if the call option you pick has a delta of .50, and the S&P 500 index is at 1,270. (Do not round intermediate calculations. A negative value should be indicated by a minus sign. Round your answer to the nearest whole number.) Number of option contracts 11,098
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 1,8 Return on HC's Stock 8.0 4.0 0 0 0.5 1.0 1.5 2.0 RISK (Beta) CAPM Elements Risk-free rate (RF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock Value An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is
Data: S0 = 102; X = 115; 1 + r = 1.1. The two possibilities for ST are 146 and 84. Required: The range of S is 62 while that of P is 31 across the two states. What is the hedge ratio of the put? Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio? What is the present value of the portfolio? Given that the stock currently is selling at 102, calculate the put value.
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURN (Percent] 20.0 16.0 12.0 Return on HC's Stock 8.0 4.0O 0.0 0.5 1.0 1.5 2.0 RISK (Beta) CAPM Elements Value Risk-free rate (rRF) 4.0% Market risk premium (RPM) 4.4% Happy Corp. stock's beta Required rate of return on 7.6% 2.2% Happy Corp. stock An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is

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