Basic Derivative Problems
Basic Derivative Problems
1.
(Answers are in red)
Select the family member who is offering the most diversification to the rest of the family.
A. Dad works for General Motors
C. Daughter works for Jiffy Lube
2.
Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of $32.00-$32.50. When you sell the bid-ask prices are $32.50-$33.00. If you pay a commission rate of 0.5%, what is your profit or loss?
A. $0
3.
D. $32.50 loss
B. $16.25 loss
C. $132.50 loss
D. $100.00 gain
B. $20 loss
C. $10 gain
D. $10 loss
The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The market index rises to $920 by the expiration date. The annual rate of interest on treasuries is 4.8% (0.4% per month). What is the difference in the profits between a long index investment and a long forward contract investment? (Assume monthly compounding.)
A. $10.84
6.
C. $32.50 gain
The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. What is the profit or loss to a short position of the forward if the spot price of the market index rises to $920 by the expiration date?
A. $20 gain
5.
B. $16.25 loss
Assume that you open a 100 share short position in Jiffy, Inc. common stock at the bid-ask price of $32.00–$32.50. When you close your position the bid-ask prices are
$32.50–$33.00. If you pay a commission rate of 0.5%, calculate your profit or loss on the short investment.
A. $32.50 gain
4.
B. Mom works for Goodyear
D. Son works for Eli Lilly & Company
B. $19.16
C. $26.40
D. $43.20
The spot price of the market index is $900. After 3 months the market index is priced at
$920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium
(i.e. price) on the long put, with an exercise price of $930, is $8.00. What is the profit or loss at expiration for the long put?
A. $2.00
1.
(Answers are in red)
Select the family member who is offering the most diversification to the rest of the family.
A. Dad works for General Motors
C. Daughter works for Jiffy Lube
2.
Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of $32.00-$32.50. When you sell the bid-ask prices are $32.50-$33.00. If you pay a commission rate of 0.5%, what is your profit or loss?
A. $0
3.
D. $32.50 loss
B. $16.25 loss
C. $132.50 loss
D. $100.00 gain
B. $20 loss
C. $10 gain
D. $10 loss
The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The market index rises to $920 by the expiration date. The annual rate of interest on treasuries is 4.8% (0.4% per month). What is the difference in the profits between a long index investment and a long forward contract investment? (Assume monthly compounding.)
A. $10.84
6.
C. $32.50 gain
The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. What is the profit or loss to a short position of the forward if the spot price of the market index rises to $920 by the expiration date?
A. $20 gain
5.
B. $16.25 loss
Assume that you open a 100 share short position in Jiffy, Inc. common stock at the bid-ask price of $32.00–$32.50. When you close your position the bid-ask prices are
$32.50–$33.00. If you pay a commission rate of 0.5%, calculate your profit or loss on the short investment.
A. $32.50 gain
4.
B. Mom works for Goodyear
D. Son works for Eli Lilly & Company
B. $19.16
C. $26.40
D. $43.20
The spot price of the market index is $900. After 3 months the market index is priced at
$920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium
(i.e. price) on the long put, with an exercise price of $930, is $8.00. What is the profit or loss at expiration for the long put?
A. $2.00