Finance TA #4

[Kevin Roy]

Hi all, I hope you all have gotten/or will get some rest following the weekend.  Finance team assignment #4 is due Friday, 6/21.  I am the team lead, working with Horatio and Lakshmi.

It is a fairly straightfoward assignment on options (attached and pasted below).  I recommend we break up the questions as follows:

Kevin -- a and f
Horatio -- b and e
Lakshmi -- c and d

If others want the practice for the final, please consider double-checking our work.

Horatio and LN, can we meet on Wednesday night at 9 p.m. to talk about these problems?

Thanks,

Kevin

Problem 1 (100 points)

For each of the following cases, calculate (i) the cash flow today, (ii) the cash flow at maturity, and (iii) the net profit from your option trading (i.e., (i) + (ii)). All options are European style and cover 1,000 shares of the underlying asset.

(a) For a premium of $2.30, you purchase a call option with a strike price of $6. At the expiration date, the stock price is $7.80.

(b) For a premium of $0.80, you purchase a call option with a strike price of $9. At the expiration date, the stock price is $7.90.

(c) You write (i.e., sell) a call option with an exercise price of $5. The option premium is $0.70. The stock price at the expiration date is $5.40.

(d) You write a call option with an exercise price of $5. The option premium is $0.70. The stock price at the expiration date is $4.90.

(e) You buy a put option with strike price of $10 for a premium of $1.20. At the expiration date, the stock price is $8.50.

(f) You short (i.e., write) a put option with strike price $7 for a premium of $0.60. At the expiration date, the stock price is $5.

[Horati...@wellsfargo.com]

Sounds good. Happy fathers day gents.

H

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[Horati...@wellsfargo.com]

Kevin,

 

FYI - I have to travel on wed night so my phone coverage may be sketchy. Thanks.

 

H

 

Horatio W. Jones IV

Vice President

Commercial Real Estate Group

Wells Fargo Bank NA

150 Fayetteville Street - Suite 200

Raleigh, NC 27601

O: 919.881.7365

C: 919.397.7535
Horati...@wellsfargo.com

 

From: wemba-1...@googlegroups.com [mailto:wemba-1...@googlegroups.com] On Behalf Of Kevin Roy
Sent: Sunday, June 16, 2013 9:41 PM
To: wemba-1...@googlegroups.com
Subject: Finance TA #4

 

Hi all, I hope you all have gotten/or will get some rest following the weekend.  Finance team assignment #4 is due Friday, 6/21.  I am the team lead, working with Horatio and Lakshmi.

--

[Lakshmi Nizampatnam]

Kevin,

Here are my answers. Most probably, I may not be available for the call as I am involved in some testing at work and will need to be available as and when needed.

I will answer any questions by email.

LN

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From: wemba-1...@googlegroups.com [wemba-1...@googlegroups.com] on behalf of Kevin Roy [kevi...@fuqua.duke.edu]
Sent: Sunday, June 16, 2013 9:40 PM

To: wemba-1...@googlegroups.com
Subject: Finance TA #4

[Horati...@wellsfargo.com]

Hey guys, attached are my answers. I hope all is well.

 

HWJ IV

 

Horatio W. Jones IV

Vice President

Commercial Real Estate Group

Wells Fargo Bank NA

150 Fayetteville Street - Suite 200

Raleigh, NC 27601

O: 919.881.7365

C: 919.397.7535
Horati...@wellsfargo.com

 

[Kevin Roy]

Thanks, Horatio and Lakshmi.  Attached are my solutions.

Since it looks like the three of us came up with the answers independently, I think we're good to go.

I liked Lakshmi's presentation as a clear way to present.  Unless there is any objection, I'm inclined to go with hers for the submission.

I don't see any reason for a call tomorrow night.  So let's consider it cancelled, especially since we had some conflicts.

Thanks, all.

Kevin

---

From: Horati...@wellsfargo.com [Horati...@wellsfargo.com]
Sent: Tuesday, June 18, 2013 7:38 PM
To: Lakshmi Nizampatnam; Kevin Roy; wemba-1...@googlegroups.com

[Lakshmi Nizampatnam]

Kevin,

Earlier today I decided to identify when the options were not exercised. So, answers didn't change, but added couple of comments. Will send out the latest file in a little while (I don't have access to it right now).

LN 

<TA 4(kr).xlsx>

[Lakshmi Nizampatnam]

Here is the latest file. Don't forget to paste into word.

LN

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From: Lakshmi Nizampatnam
Sent: Tuesday, June 18, 2013 10:37 PM
To: Kevin Roy
Cc: Horati...@wellsfargo.com; Lakshmi Nizampatnam; wemba-1...@googlegroups.com
Subject: Re: Finance TA #4

[Horatio Jones IV]

Sounds good Kevin! H
________________________________________

From: wemba-1...@googlegroups.com [wemba-1...@googlegroups.com] on behalf of Kevin Roy [kevi...@fuqua.duke.edu]

Sent: Tuesday, June 18, 2013 10:31 PM
To: Horati...@wellsfargo.com; Lakshmi Nizampatnam; wemba-1...@googlegroups.com

Subject: RE: Finance TA #4

Thanks, Horatio and Lakshmi. Attached are my solutions.

Since it looks like the three of us came up with the answers independently, I think we're good to go.

I liked Lakshmi's presentation as a clear way to present. Unless there is any objection, I'm inclined to go with hers for the submission.

I don't see any reason for a call tomorrow night. So let's consider it cancelled, especially since we had some conflicts.

Thanks, all.

Kevin
________________________________
From: Horati...@wellsfargo.com [Horati...@wellsfargo.com]
Sent: Tuesday, June 18, 2013 7:38 PM
To: Lakshmi Nizampatnam; Kevin Roy; wemba-1...@googlegroups.com
Subject: RE: Finance TA #4

Hey guys, attached are my answers. I hope all is well.

HWJ IV

Horatio W. Jones IV
Vice President
Commercial Real Estate Group
Wells Fargo Bank NA
150 Fayetteville Street - Suite 200
Raleigh, NC 27601
O: 919.881.7365
C: 919.397.7535

Horati...@wellsfargo.com<mailto:Horati...@wellsfargo.com>

From: wemba-1...@googlegroups.com [mailto:wemba-1...@googlegroups.com] On Behalf Of Lakshmi Nizampatnam
Sent: Tuesday, June 18, 2013 12:47 AM
To: Kevin Roy; wemba-1...@googlegroups.com
Subject: RE: Finance TA #4

Kevin,

Here are my answers. Most probably, I may not be available for the call as I am involved in some testing at work and will need to be available as and when needed.

I will answer any questions by email.

LN

________________________________

From: wemba-1...@googlegroups.com<mailto:wemba-1...@googlegroups.com> [wemba-1...@googlegroups.com] on behalf of Kevin Roy [kevi...@fuqua.duke.edu]

Sent: Sunday, June 16, 2013 9:40 PM

To: wemba-1...@googlegroups.com<mailto:wemba-1...@googlegroups.com>

Subject: Finance TA #4
Hi all, I hope you all have gotten/or will get some rest following the weekend. Finance team assignment #4 is due Friday, 6/21. I am the team lead, working with Horatio and Lakshmi.

It is a fairly straightfoward assignment on options (attached and pasted below). I recommend we break up the questions as follows:

Kevin -- a and f
Horatio -- b and e
Lakshmi -- c and d

If others want the practice for the final, please consider double-checking our work.

Horatio and LN, can we meet on Wednesday night at 9 p.m. to talk about these problems?

Thanks,

Kevin

Problem 1 (100 points)

For each of the following cases, calculate (i) the cash flow today, (ii) the cash flow at maturity, and (iii) the net profit from your option trading (i.e., (i) + (ii)). All options are European style and cover 1,000 shares of the underlying asset.

(a) For a premium of $2.30, you purchase a call option with a strike price of $6. At the expiration date, the stock price is $7.80.

(b) For a premium of $0.80, you purchase a call option with a strike price of $9. At the expiration date, the stock price is $7.90.

(c) You write (i.e., sell) a call option with an exercise price of $5. The option premium is $0.70. The stock price at the expiration date is $5.40.

(d) You write a call option with an exercise price of $5. The option premium is $0.70. The stock price at the expiration date is $4.90.

(e) You buy a put option with strike price of $10 for a premium of $1.20. At the expiration date, the stock price is $8.50.

(f) You short (i.e., write) a put option with strike price $7 for a premium of $0.60. At the expiration date, the stock price is $5.

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[Kevin Roy]

All, attached is the Word document that I will submit.  Please get back to me by 10 p.m. tonight with any suggested revisions. 

Again, I believe Horatio, LN, and I each came up with the same solutions independently and that we should be good-to-go.

Thanks, all.

Kevin

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From: Lakshmi Nizampatnam
Sent: Tuesday, June 18, 2013 11:56 PM
To: Kevin Roy
Cc: Horati...@wellsfargo.com; wemba-1...@googlegroups.com

[Raj Galagali]

Looks good to me.

[Rashida A Hodge]

Hi Kevin,  I just reviewed and I do not see anything that I would like to object to.  Thanks!


Regards,

RASHIDA HODGE
Manager, ISC Strategy and Innovation

	Phone: 1-919-254-1391 | Mobile: 1-919-244-6304 E-mail: rah...@us.ibm.com Find me on:   and within IBM on:   "The biggest room is the room for improvement"	3039 E Cornwallis Rd Research Triangle Park, NC 27709-2195 United States

<TA 4(kr).xlsx>

.

[attachment "Assignment4-Team7.docx" deleted by Rashida A Hodge/Raleigh/IBM]

[Kevin Roy]

All, the Finance assignment has been submitted.  Thanks, Kevin

Assignment Details

Your submission has been received. Details are below:
Course:	Global Financial Management
Assignment:	Group Assignment 4
Team:	Team 7  - Brian Williams  - Raj Galagali  - Rashida Hodge  - Horatio Jones  - Lakshmi Nizampatnam  - Kevin Roy
Submitted By:	Kevin Roy
File Name:	Assignment4-Team7.docx
File Size:	42028 bytes
Date Submitted:	6/21/2013 8:05 AM EDT (ON TIME)
Notes:	Attached is Team 7's group assignment #4. Thank you.

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From: Rashida A Hodge [rah...@us.ibm.com]
Sent: Thursday, June 20, 2013 5:48 PM
To: Kevin Roy
Cc: wemba-1...@googlegroups.com