A financial institution formed by a large organization for its members is a credit union.

a trader creates a long butterfly spread from options with strike prices x, y, and z, where x < y < z, and y is exactly mi

Montano1993 [528]

Answer:

$1006

Explanation:

A long butterfly is created by following these steps

Long 1 call option for strike X ( highest premium say C)

Short 2 call option for Strike Y (premium =C-6.67 )

Long 1 call option for strike Z (premium = C-6.67 - 5.03 = C-11.70 where X<Y<Z

Here, Y-X = Z-Y =$11.70

i) whenever the price at maturity goes below the price of x ( no call option is executed )

payoff = 2*(C-6.67) -C-(C-11.7) = - 13.34 + 11.70 = - 1.64

ii) when the price at maturity is between X and Y, only call with strike X is executed

hence payoff = -1.64 +(P-X) where P is the Price at maturity

p - x = y-x = 11.70

hence maximum payoff = - 1.64 + 11.70 = $10.06

iii) When the price is between Y and Z , only call with strike X and Y are executed.

hence, payoff = -1.64 + (P-X) -2* (P-Y) = -1.64 +( 2Y - X - P) and this value decreases as P increases

the minimum payoff occurs when P=Z

So, maximum payoff = -1.64 + (Z-X) - 2*(Z-Y) = -1.64 + 23.4 - 2*11.7 = -$1.64

iv) When the price at maturity is more than Z , all calls are executed

hence, payoff = -1.64 +(P-X) -2* (P-Y) + (P-Z) = -1.64+(2Y-X-Z)

= -1.64+(Y-X -(Z-Y)) = -1.64+(11.7 - 11.70)

= -$1.64

the maximum payoff occurs when P=Y

considering the four options traded the maximum payoff = $10.06

Finally determine the maximum net gain when 400 options are traded

= 10.06 * 400 / 4

= 10.06 * 100 = $1006

3 0

3 years ago

Blossom Corporation, a manufacturer of ethnic foods, contracted in 2020 to purchase 470 pounds of a spice mixture at $2.35 per p

Sveta_85 [38]

Answer:

No gain or loss.

Explanation:

Given:

Amount of spice mixture = 470 pound

Current price = $2.35 per pound

Future price = $2.73 per pound

Computation:

We know that, Future price of spice mixture is higher than current price of spices.

But contract price is fixed at $2.35.

Therefore, no gain or loss will be recognized.

7 0

4 years ago

Read 2 more answers

A company has a Deferred Tax Liability of $35,000. Now, the government has just changed the statutory tax rate from 35% to 30% e

Ivanshal [37]

Answer and Explanation:

The correct journal entry to record the impact of this tax rate change is shown Below:

Income Tax Expense $5,000

To Deferred Tax Assets $5,000

(being the income tax expense is recorded)

here the income tax expense is debited as it increased the expense and credited the deferred tax assets

So, the same should be considered

7 0

3 years ago

Answer the question on the basis of the following data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity s

bezimeni [28]

Question Completion:

Domestic Market for Steel, Alpha

Qs P Qd

60 5 10

40 4 20

30 3 30

20 2 40

10 1 50

Domestic Market for Steel, Beta

Qs P Qd

80 5 20

70 4 30

60 3 40

50 2 50

40 1 60

Answer:

Assuming that Alpha and Beta are the only two nations in the world, at the equilibrium world price:

Beta will export steel and Alpha will import steel.

Explanation:

a) Data and Calculations:

Domestic and World Market for Steel

Alpha Beta World Market

Qs P Qd Qs P Qd Qs P Qd

60 5 10 80 5 20 140 5 30

40 4 20 70 4 30 110 4 50

30 3 30 60 3 40 90 3 70

25 2.50 35 55 2.50 45 80 2.50 80

20 2 40 50 2 50 70 2 90

10 1 50 40 1 60 50 1 110

b) In the world market, equilibrium will occur at a price of $2.50, when the quantity supplied and demanded will be 80. At this equilibrium price of $2.50, Alpha will supply 25 units, and Beta will supply 55 units. Alpha will demand 35 units, and Beta will demand 45 units. This implies that Beta will supply more than its demand for steel, while Alpha will supply less. Therefore, Beta will export steel and Alpha will import steel.

4 0

4 years ago

What is the role of business in a global economy?

posledela

Answer:

In any market economy, business plays a huge role. Business is the engine of an economy. Business provides jobs that allow people to make money and goods and services that people can buy with the money they make. Without business, the economy would be very inefficient and/or very primitive.

Explanation:

5 0

3 years ago