Finance Homework

Description

Please answer the below Questions:

1.13. Suppose that a March call option on a stock with a strike price of costs and is held until March. Under what circumstances will the holder of the option make a gain? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.

1.20. A trader enters into a short forward contract on 100 million yen. The forward exchange rate is per yen. How much does the trader gain or lose if the exchange rate at the end of the contract is (a) per yen; (b) per yen?

2.10. Explain how margin accounts protect futures traders against the possibility of default.

3.18. On July 1, an investor holds 50,000 shares of a certain stock. The market price is per share. The investor is interested in hedging against movements in the market over the next month and decides to use the September Mini S&P 500 futures contract. The index futures price is 1,500 and one contract is for delivery of times the index. The beta of the stock is 1.3. What strategy should the investor follow?