Exam 21: Macroeconomic and Industry Analysis

Use the Black-Scholes Option Pricing Model for the following problem.Given: S_O= $70; X = $70; T = 70 days; r = 0.06 annually (0.0001648 daily); • = 0.020506 (daily).No dividends will be paid before option expires.The value of the call option is _______.

At expiration,the time value of an in the money call option is always

A put option has an intrinsic value of zero if the option is

A hedge ratio for a call option is ________ and a hedge ratio for a put option is ______.

The time value of a call option is I.the difference between the option's price and the value it would have if it were expiring immediately. II.the same as the present value of the option's expected future cash flows. III.the difference between the option's price and its expected future value. IV.different from the usual time value of money concept.

The intrinsic value of an out-of-the-money call option is equal to

If the hedge ratio for a stock call is 0.70,the hedge ratio for a put with the same expiration date and exercise price as the call would be _______.

A put option is currently selling for $6 with an exercise price of $50.If the hedge ratio for the put is -0.30 and the stock is currently selling for $46,what is the elasticity of the put?

If the hedge ratio for a stock call is 0.60,the hedge ratio for a put with the same expiration date and exercise price as the call would be _______.

You are evaluating a stock that is currently selling for $30 per share.Over the investment period you think that the stock price might get as low as $25 or as high as $40.There is a call option available on the stock with an exercise price of $35.Answer the following questions about hedging your position in the stock.Assume that you will hold one share. What is the hedge ratio? How much would you borrow to purchase the stock? What is the amount of your net investment in the stock? Complete the table below to show the value of your stock portfolio at the end of the holding period. Scenario Low Stock Price High Stock Price Value of Stock at Year End Repayment of Loan Total How many call options will you combine with the stock to construct the perfect hedge? Will you buy the calls or sell the calls? Show the option values in the table below. Scenario Low Stock Price High Stock Price Value of Call Position Show the net payoff to your portfolio in the table below. Scenario Low Stock Price High Stock Price Value of Stock at Year End Value of Call Position Total What must the price of one call option be?

Since deltas change as stock values change,portfolio hedge ratios must be constantly updated in active markets.This process is referred to as

A portfolio consists of 225 shares of stock and 300 calls on that stock.If the hedge ratio for the call is 0.4,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Prior to expiration

An American call option buyer on a non-dividend paying stock will

The gamma of an option is

The elasticity of an option is

Before expiration,the time value of an in the money put option is always

Prior to expiration

A hedge ratio of 0.70 implies that a hedged portfolio should consist of

A put option on the S&P 500 index will best protect ________