Homework Assignment #4

This homework set is OPTIONAL.  No need to turn in anything, but solutions will be provided later.
 
 

1. Suppose you are looking at 1-month calls and puts on IBM. There is no IBM dividend to be paid out within the next month.
1.1. Draw a payoff chart for a portfolio of  one IBM share and one IBM put with an exercise price of $100. Draw a payoff chart for one IBM call with the same exercise price of $100. Are they the same? Explain why.
1.2. Draw the payoff chart for a portfolio of (i) one IBM put with exercise price $90, (ii) 2 IBM calls with exercise price $95, (iii) a short position in one IBM call with exercise price $100, and (iv) a short position in one IBM call with exercise price $110.

2. Problems 40 and 41 of  Chapter 21, the BKM textbook.

3. Problem 24 of Chapter 20, the BKM textbook.

4. Problem 2 of Chapter 21, the BKM textbook.

5. Problem 4 of Chapter 21, the BKM textbook.

6. Problem 23 of Chapter 21, the BKM textbook.

7. Problem 27 of Chapter 21, the BKM textbook.

8. Problem 35 of Chapter 21, the BKM textbook.