Exam (elaborations)
Solution Manual for Derivatives Markets 3rd Edition by McDonald 2024,2025
- Course
- Medicine
- Institution
- Albany Medical College
Solution Manual for Derivatives Markets 3rd Edition by McDonald 2024,2025
[Show more]
Content preview
Solution Manual for Derivatives MarketsChapter 2
An Introduction to Forwards and Options
Question 2.1
The payoff diagram of the stock is just a graph of the stock price as a function of the stock price:
In order to obtain the profit diagram at expiration, we have to finance the initial investment. We
do so by selling a bond for $50. After one year, we have to pay back: $50 × (1 + 0.1) = $55. The
second figure (on the next page) shows the graph of the stock, of the bond to be repaid, and of the
sum of the two positions, which is the profit graph. The arrows show that at a stock price of $55,
the profit at expiration is indeed zero.
, 9
8
©2013 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 2/An Introduction to Forwards and Options
Question 2.2
Since we sold the stock initially, our payoff at expiration from being short the stock is negative.
In order to obtain the profit diagram at expiration, we have to lend out the money we received from
the short sale of the stock. We do so by buying a bond for $50. After one year, we receive from
the investment in the bond: $50 × (1 + 0.1) = $55. The second figure shows the graph of the sold
©2013 Pearson Education, Inc. Publishing as Prentice Hall
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Bellasexams. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $15.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53340 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now