Make sure the answers are easy to find and read. Make sure you answer the drop-d
ID: 1140726 • Letter: M
Question
Make sure the answers are easy to find and read. Make sure you answer the drop-down answers too. In the drop-down box for question b, the choices in the first box are MORE OR LESS so pick the correct choice The choices in the second and third box for question b are HIGHER or LOWER so pick the correct one. Please show how you got the answer too. The last person gave me the wrong answer and they did not answer all of it. I had 5, 4, 3, 2, 1,0, -1, -2,-3, and -4 It was incorrect.
A put option in finance allows you to sell a share of stock at a given price in the future. There are different types of put options. A European put option allows you to sell a share of stock at a given price, called the exercise price, at a particular point in time after the purchase of the option. For example, suppose you purchase a six-month European put option for a share of stock with an exercise price of $26. If six months later, the stock price per share is $26 or more, the option has no value. If in six months the stock price is lower than $26 per share, then you can purchase the stock and immediately sell it at the higher exercise price of $26. If the price per share in six months is $22.50, you can purchase a share of the stock for $22.50 and then use the put option to immediately sell the share for $26. Your profit would be the difference, $26 -$22.50-$3.50 per share, less the cost of the option. If you paid $1.00 per put option, then your profit would be $3.50 $1.00 $2.50 per share. The point of purchasing a European option is to limit the risk of a decrease in the per-share price of the stock. Suppose you purchased 200 shares of the stock at $28 per share and 70 six-month European put options with an exercise price of $26. Each put option costs $1 (a) Using data tables, construct a model that shows the value of the portfolio with options and without options for a share price in six months between $20 and $29 per share in increments of $1.00. What is the benefit of the put options on the portfolio value for the different share prices? For subtractive or negative numbers use a minus sign even if there is a sign before the blank. (Example: -300). If you answer is zero, enter Share Price $20 $21 $22 $23 $24 $25 $26 $27 $28 Benefit of Options 0Explanation / Answer
Ans 1)
At share Price $20 our value of Portfolio would reduce to 200*20=$4000 and as after 6 months stock price is less than strike price of option then total benefits from the option will be 70*(26-20)-70=$350
when Price is $21 then benefit from options =70*(26-21)-70=$280
when Price is $22 then benefit from options =70*(26-22)-70=$210
when Price is $23 then benefit from options =70*(26-23)-70=$140
when Price is $24 then benefit from options =70*(26-24)-70=$70
when Price is $25 then benefit from options =70*(26-25)-70=$0
when Price is $26 then benefit from options =70*(26-26)-70=-$70
when Price is $27 then benefit from options =70*(26-27)-70=-$70
when Price is $28 then benefit from options =70*(26-28)-70=-$70
when Price is $29 then benefit from options =70*(26-29)-70=-$70
because if stock price is higher than strike price then buyer of options will not execute the option and only losses are the premium of options
Ans B)
1) Lower the stock price more the benefits from put options
2) $26
3)
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