A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18 and interest rate is .5% per month, what is the profit or loss at expiration (in 6 months) if the market index is $810? A $20 gain B $18.65 gain C $36.29 loss D $43.76 loss. I know you will lose $20 or the buy and gain $20 on the put. Minus the premium for $18 you've lost $18, where does the interest rate come in?
This is obviously a hypothitical questions, I posted this last time and got a few answers about different stocks to invest in, and also that I didn't specifiy what the market index product is. This is a question that has to do with generic derivitives, so it could be a S&P Index or anything really. Sorry about the repost but I forgot the interest rate (.5% MONTHLY) last time.
2007-04-02 15:01:49 · 2 answers · asked by mitchent86 4 in Business & Finance ➔ Investing
First calculate the amount of the investment, in this case
$830 + $18 = $848.
Second, increase by the cost to carry (the interest on the cash)
(1.005 to the 6th power) x 848 = $873.76
to get the total cost.
Third, subtract your total cost from your return
$830 - $873.76 = -$43.76
or a loss of $43.76.
2007-04-02 15:28:51 · answer #1 · answered by zman492 7 · 2⤊ 0⤋
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2016-10-17 22:50:32 · answer #2 · answered by venturino 4 · 0⤊ 0⤋