*I need step by step explanation on how the answer in bold were gotten.* The fol

Question

*I need step by step explanation on how the answer in bold were gotten.* The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices. Calls Puts Strike March June March June 45 6.84 8.41 1.18 2.09 50 3.82 5.58 3.08 4.13 55 1.89 3.54 6.08 6.93 Use this information to answer questions 9. Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated. 9. Suppose you wish to construct a ratio spread using the March and June 50 calls. You want to buy 100 June 50 call contracts. I low many March 50 calls would you sell? a. 105 b. 95 C. 100 d. 57 e. none of the above

Explanation / Answer

The number of contracts that would be sold are 105.

The June 50 call option is $5.58.

To buy 100 contracts worth $5.58 each contract, the total value would be $558.

Hence, you have to spend 105 march 50 calls to buy 100 June 50 call options.

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.