Question

QUESTION 1

. A margin account is used to buy 2000 shares on margin at $25 per share. $11,782 is borrowed from the broker to complete the purchase. What is the margin at the time the purchase was made?

QUESTION 2 . An investor buys a call at a premium of $3 with a strike price of $75 for stock A with a maturity of 1 month. What will be the profit for the investor in one month at stock price of $74

QUESTION 3. An investor buys a put at a premium of $5 with a strike price of $75 for stock A with a maturity of 1 month. What will be the profit for the investor in one month at stock price of $71.

QUESTION 4. An investor sells a call option at a premium pf $4 with a strike price of $54 for stock A with a 3 month maturity. Calculate the profit for the investor in three months at a stock price of $63.

show workings please

Answer 1

QUESTION 1

The margin at the time of purchase = Price per share * Number of shares - Borrowed amount

The margin at the time of purchase = 25 * 2,000 - 11,782

The margin at the time of purchase = 50,000 - 11,782

The margin at the time of purchase = $38,218

QUESTION 2

Long call option profit = max(St - X, 0) - Premium paid

Profit = max(74 - 75, 0) - 3

Profit = max(-1, 0) - 3

Profit = -$3

Or a loss of $3

QUESTION 3

Long put option profit = max(X - St, 0) - Premium paid

Profit = max(75 - 71, 0) - 5

Profit = max(4,0) - 5

Profit = 4 - 5

Profit = -$1

Or a loss of $1

QUESTION 4

Short call option profit = -max(St - X, 0) + Premium received

Profit = -max(63 - 54, 0) + 4

Profit = -max(9, 0) + 4

Profit = -9 + 4

Profit = -$5

Or a loss of $5