I need some help with Investment questions pertaining to options
a) You have $10000 to invest. The current price of one share of NMS Company Limited is $ 80. The Annual Interest Rate is 6%. Three series of Call options are traded on the shares of NMS Limited. They expire after 6 months with X = $75, X = $ 80 and X = to $ 85 repectively. Market prices of these options are
Call (75) = $ 10
Call (80) = $ 6
Call (85) = $ 3.5
Assume that you buy three calls (x = $85 ) Compare this to an investment of one call (x= $75). When will the call (x= $ 75) be profitable? Illustrate the answer graphically and label the axis and indicate the point of indifference.
B) Three series of put options are also traded on the shares of NMS Limited They all hey expire after 6 months with X = $75, X = $ 80 and X = to $ 85 respectively. Market prices of these options are
Put (75) = $ 2.85
Put (80) = $ 3.70
Put (85) = $ 6.06
Write a put option (x = $ 80) and deposit the rest of the money in an account for 6 months? Illustrate the wealth on a graphs and clearly market the labels
C) You are attempting to value a call option with an exercise price of $ 100 and and 1 year to expiration. The underlying share price pays no dididend, its current price is $ 100 and you expect that it has a 50% chance of increasing to $ 120 and a 50% chance that it will decrease to $ 80. The Risk free rate is 15% Per annum. Calculate this call options value using the two-state option pricing model
D) what is the difference between a forward & Futures contract?
Your assistance will be most appreciated
Regards
Howard
a) You have $10000 to invest. The current price of one share of NMS Company Limited is $ 80. The Annual Interest Rate is 6%. Three series of Call options are traded on the shares of NMS Limited. They expire after 6 months with X = $75, X = $ 80 and X = to $ 85 repectively. Market prices of these options are
Call (75) = $ 10
Call (80) = $ 6
Call (85) = $ 3.5
Assume that you buy three calls (x = $85 ) Compare this to an investment of one call (x= $75). When will the call (x= $ 75) be profitable? Illustrate the answer graphically and label the axis and indicate the point of indifference.
B) Three series of put options are also traded on the shares of NMS Limited They all hey expire after 6 months with X = $75, X = $ 80 and X = to $ 85 respectively. Market prices of these options are
Put (75) = $ 2.85
Put (80) = $ 3.70
Put (85) = $ 6.06
Write a put option (x = $ 80) and deposit the rest of the money in an account for 6 months? Illustrate the wealth on a graphs and clearly market the labels
C) You are attempting to value a call option with an exercise price of $ 100 and and 1 year to expiration. The underlying share price pays no dididend, its current price is $ 100 and you expect that it has a 50% chance of increasing to $ 120 and a 50% chance that it will decrease to $ 80. The Risk free rate is 15% Per annum. Calculate this call options value using the two-state option pricing model
D) what is the difference between a forward & Futures contract?
Your assistance will be most appreciated
Regards
Howard