Please show calculations for the problems listed below. Thanks

1. You just bought two April S&P 500 index futures contracts at a futures price of $400. If the April futures price is $380 one month later, you will have realized a _______ if you close your position.

$380 profit
$380 loss
$10,000 profit
$10,000 loss

2. Question: The current level of the S&P 500 index should be __________ if the futures price for a contract on the S&P 500 that will expire 6 months from now is $808, the dividend yield on the S&P 500 is 2%, and the risk-free interest rate is 4%.

816
808
800
828

3. You just bought 100 shares of Microsoft for $80 per share and sold one Microsoft March 82 call contract for a call premium of $2. The maximum loss that you could realize from this strategy is

$8,400
$7,800
$8,000
$8,200

Solution Preview

1. You just bought two April S&P 500 index futures contracts at a futures price of $400. If the April futures price is $380 one month later, you will have realized a _______ if you close your position.
$380 profit
$380 loss
$10,000 profit
$10,000 loss

D) The loss of each futures is (400-380) = 20
It is commonly assumed that each contract requires $500 times the index ...

Solution Summary

3 multiple choice questions on the subject are answered and explained.

5. You note that Sony stock is selling at $25. Each month, it either goes up 10% or down 8%. The interest rate is 1% per month.
a. What is the value of a two-month call option to buy Sony at $26?
b. What is the value of a two-month put option with an exercise price of $26?
6. You note that platinum sells for $750 pe

Make a Power Point with details about the differences between using futures contracts andoptions contracts in order to reduce risk.
- Are there any advantages to using one of the instruments over the other
- Is one of these more effective than the other?
- Are the costs of each different?
- Calculate how many call option

5. Suppose that the pension you are managing is expecting an inflow of funds of $100 million next year and you want to make sure that you will earn the current interest rate of 8% when you invest the incoming funds in long term bonds. How would you use the futures market to do this?
6. How would you use the options market to

AD 13: The Dow Jones Industrial Average on August 15, 2008 was 11,660 and the price of the December 117 call was $3.50. Assume the risk-free rate is 4.2%, the dividend yield is 2% and the option expires on December 25 (options markets are closed the day after Christmas).
Q1: Use Derivagem to calculate the implied volatility o

Consider commodity Z, which has both exchange-traded futuresand option contracts associated with it. As you look in today's paper , you find the following put andcall prices for options that expires exactly six month from now:
Exercise price Put price Call Price
40 0.59 8.

A stock when it is first issued provides funds for a company. Is the same true of an exchange-traded stock option? Discuss.
Explain the link between options, futuresand forward contracts.
Explain why a futures contract can be used for either speculation or hedging.

3. The current interest rate is 5 percent per year. You can treat it as 2.5% per six months. You can borrow or lend at this interest rate. The futures contract for gold six months in the future is selling for $346.30, whereas the futures contract 12 months in the future is selling for $360.00. Is there an arbitrage opportun

Please see the attached file.
1. This problem requires you to use the Black-Scholes formula. A call option with X=$50 on a stock currently priced at S=$55 is selling for $10. Using a volatility estimate of sigma = .30, you find that N(d1) = .6 and N(d2) = .5. The risk free rate is zero. Is the implied volatility based on the op

Ricardo International would like you to demonstrate your knowledge of the Black-Scholes option pricing model by finding the call price of an U.S. call option with the following characteristics:
stock price = $60
exercise price = $60
risk-free rate is 12%
volatility (variance of stock returns) = 9% per year
time to mat