What can a decision-making grid do?

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

At the beginning of July, CD City has a balance in inventory of $2,850. The following transactions occur during the month of Jul

myrzilka [38]

Answer:

Inventory 1750 debit

Accounts Payable 1,750 credit

--to record purchase--

Inventory 120 debit

Cash 120 credit

--to record payment of freights--

Accounts Payable 400 debit

Inventory 400 credit

--to record returned goods--

Accounts Payable 1350 debit

Inventory 27 credit

Cash 1323 credit

--to record payment within discount--

Accounts Receivables 4700 debit

Sales Revenues 4700 credit

--to record sale--

COGS 2450 debit

Inventory 2450 credit

--to record COGS of the previous sale--

Cash 4700 debit

Accounts Receivables 4700 credit

--to record collection in full amount--

Inventory 2550 debit

Accounts Payable 2550 credit

--to record purchase--

Accounts Receivables 3650 debit

Sales Revenues 3650 credit

--to record sale--

COGS 1950 debit

Inventory 1950 credit

--to record COGS of the previous sale--

Accounts Payable 190 debit

Inventory 190 credit

--to record returned goods--

Accounts Payable 2360 debit

Inventory 47.2 credit

Cash 2312.8 credit

--to record payment within discount--

Explanation:

We reocrd each entry assuming the basic accounting principles

debit = credit

first purchase balance:

1,750 less 400 return = 1,350

discount 1,350 x 2% = 27

cash outlay 1,350 - 27 = 1,323

second purchase balance:

2,550 less 190= 2,360 balance

discount 2,360 x 2% discount = 47.20

cash outlay 2,360 - 47.20 = 2312.8

4 0

4 years ago

An organization whose members have a common cause for which they seek to influence public policy is called an

dangina [55]

It's called an interest group

4 0

4 years ago

Read 2 more answers

Under management by exception, which differences between planned and actual results should be investigated? Group of answer choi

lesantik [10]

Answer:

Material and controllable

Explanation:

Management by exception is a business practice where only only significant difference between actual and normal is identified and treated accordingly.

5 0

4 years ago

Your aunt has promised to give you $5,000 when you graduate from college. You expect to graduate three years from now. If you sp

ikadub [295]

Answer:

The present value of the promised gift will:

be less than $5,000.

Explanation:

The present value of $5,000 to be received in three years' time from today is less than $5,000 received. This is explained by the time value of money concept. If the $5,000 gift is discounted to today's value, using a discount factor of 0.751 (10% in three years' time), it would be $3,755 ($5,000 * 0.751). This means that $5,000 received in year 3 is less than $5,000 received today.

3 0

3 years ago