Please answer the following finance questions. Please be sure to show and explai
ID: 2622178 • Letter: P
Question
Please answer the following finance questions. Please be sure to show and explain all work!
3. Skye Peak Corporation bought 200 shares of Tesla Motors stock at $235 per share. At the same time, it sold call options on 100 shares with exercise price $240, expiring after 303 days, at $41.85 per share. Skye Peak also sold calls on 100 shares, with exercise price $250, maturing after 303 days, at $37.95 per share. When the options expired, the stock was trading at $245 per share. Ignore transaction costs and dividends. Find the following:
(A) The initial value of the investment
(B) The final value of the investment
(C) The profit in this investment, defined as the difference between (A) and (B)
(D) The risk-adjusted discount rate in this investment is 10%. Using continuous discounting, find the NPV of this investment.
4. Ramshead Corporation has bought 300 shares of Apple stock at $528.70 per share. It has sold call options on 100 shares, with exercise price $530, for $18 each; and options on 200 shares, exercise price $540, for $13.63 each. All options will expire after 57 days and then Ramshead will liquidate this position. Ramshead expects the price of Apple stock after 57 days to be $535 per share. It uses 12% as the discount rate, with continuous compounding. Calculate the following:
(A) The initial investment
(B) The final liquidation value
(C) NPV of this investment
Explanation / Answer
3)
A) Initial value = 200*235 - 100*41.85 - 100*37.95 = $39020
B)Final value = 200*245 - 5*100 = $48500
C) Profit = Final value - Initial value = 48500 - 39020 = $9480
D) Profit = Final value/e^(r*t) - Initial value = 48500/e^(0.1*303/365) - 39020 = $5616.40
4)
A) Initial value = 300*528.70 + 100*18 + 200*13.63 = $154084
B)Final value = 300*535 - 100*18*e^(0.12*57/365) - 200*13.63*e^(0.12*57/365) -5*100 = $160000
C) NPV = Final value/e^(0.12*57/365) - Initial value = $2945.56