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(Corporate Finance) Practice Questions - Week 13 Derivatives

questions for Corporate finance

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kashan khan
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14 views

(Corporate Finance) Practice Questions - Week 13 Derivatives

questions for Corporate finance

Uploaded by

kashan khan
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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[Corporate Finance]

Practice Questions - Week 13


Derivatives
1. An investor enters into a short forward contract to sell 100,000 British pounds for US
dollars at an exchange rate of 1.5000 US dollars per pound. How much does the investor
gain or lose if the exchange rate at the end of the contract is (a) 1.4900 and (b) 1.5200?

2. A trader enters into a short cotton futures contract when the futures price is 50 cents per
pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain
or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b)
51.30 cents per pound?

3. Suppose that a March call option on a stock with a strike price of $50 costs $2.50 and is
held until March. Under what circumstances will the holder of the option make a gain?
Under what circumstances will the option be exercised? Draw a diagram showing how
the profit on a long position in the option depends on the stock price at the maturity of the
option.

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