A. You buy a put option on a stock for a premium of $2.29. The current stock pri

Question

A.

You buy a put option on a stock for a premium of $2.29. The current stock price is $59, and the option strike price is $47. What is your break-even stock price?

B.

An investor enters into a short forward contract on 105 thousand GBP for 1.54 USD each. How much does the investor profit if the exchange rate at the end of the contract is 1.66 USD/GBP?

Note: GBP is British pounds, USD is US dollar.

C.

You expect to be needing 100k bushels of corn in a few months, and want to hedge your commodity pricing risk. What mechanism can you use to accomplish your goal?

Note: 'long' means you buy the contract, 'short' means you sell it.

long call

short call

long put

short futures

long call

short call

long put

short futures

Explanation / Answer

Answer a 47-2.29=44.71

Answer b loss of (1.66-1.54)*105000=$12600

Answer C

Long call

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