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
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Chapter 1 to 3 Chapter 9 Revision on Financial Derivatives & Properties of Options Prices • What are financial derivatives? What are their roles in finance? • Give examples of derivatives and draw their profit diagrams. • Name some financial derivatives that are traded in Bursa Malaysia. 2 • Definition A financial instrument that has a value determined by the price of something else Risk management. Derivatives are tools for companies and other users to reduce risks Speculation
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was often more valuable than gold. Silver is currently about 1/50th the price of gold by mass‚ and 70 times more valuable than copper. Silver did once trade at 1/6th to 1/12th the price of gold‚ however‚ the discovery of great silver deposits in the Americas. These new discoveries made the price of silver fall dramatically‚ due to the excess supply prices were forced down‚ as the demand did not match supply at so high price levels. Demand for silver has changed over the past years. Firstly‚ the
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predetermined price within a specified period of time. The single most important characteristic of an option is that although it gives the right to buy (or sell)‚ it does not obligate the holder to do so. b. Options have a unique set of terminology. Define the following terms: (1) Call Option: Gives the owner the right to buy a share of stock at a fixed price‚ that is‚ the strike of exercise price. (2) Put Option: Gives the owner the right to sell a share of stock at a fixed price‚ that is‚ the
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expiration is equal to: Payoff to short forward = Forward price – Spot price at expiration Therefore‚ we can construct the following table: Price of Asset in 6 Agreed Forward Price months Payoff to Short Forward 40 10 45 50 5 50 50 0 55 50 -5 60 (b) The payoff 50 50 -10 to a purchased put option at expiration is: Payoff to long put option = max [0‚ Strike price - Spot price at expiration]
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rate changes Transaction exposure measures gains or losses that arise from the settlement of existing financial obligations whose terms are in a foreign currency. The situations include • Purchasing or selling on credit goods or services when prices are stated in foreign currencies • Borrowing or lending funds when repayment is to be made in a foreign currency • Being a party to an unperformed forward contract • Acquiring assets or incurring liabilities denominated in foreign currencies
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different strike prices to create a range of prices the strategy can profit from. 2. What are its advantages and disadvantages? * Large profit percentage due to low cost involve in executing the position Limited risk should the underlying asset rally or ditch unexpectedly Maximum loss and profits are predictable * Larger commissions involved than simpler strategies with lesser trades Not a strategy that traders with low trading levels can execute 3. How to price and enter
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consideration of the $146 million in balance December 1996‚ our shortage of cash is actually around $80 million. At the moment the Myotrophin got approved‚ it is clear that our stock price will increase. As analysts predicted‚ it is quite clear that our stock price will go up to $30-40 per share. In the least case of our new stock price $30‚ the call option that we bought from SBC will generate us $21.25 million and in the most optimal case the pay off will be $45 million. Plus the $100 million we are expect
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8. A corporate treasurer is designing a hedging program involving foreign currency options. What are the pros and cons of using (a) the NASDAQ OMX and (b) the over-the-counter market for trading? The NASDAQ OMX offers options with standard strike prices and times to maturity. Options in the over-the-counter market have the advantage that they can be tailored to meet the precise needs of the treasurer. Their disadvantage is that they expose the treasurer to some credit risk. Exchanges organize
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b. Call options generally sell at a price less than their exercise value. c. If a stock becomes riskier (more volatile)‚ call options on the stock are likely to decline in value. 3. Which of the following statements is CORRECT? d. The market value of an option depends in part on the option’s time to maturity and also on the variability of the underlying stock’s price. 4. The current price of a stock is $22‚ and at the end of one year its price will be either $27 or $17. The annual risk-free
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