Chapter 23
Problems 1-10
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
Chapter 23
Question 1
Input Area:
Output Area:
Initial contract value 30,620$
Final contract value 30,330$
Initial cocoa price 3,062$
Tons per contract 10
Final cocoa price 3,033$
Chapter 23
Question 2
Input Area:
Output Area:
Initial contract value 184,935.00$
Final contract value 37.05$ 185,250.00$
Gain/(Loss) per contract (315.00)$
Final contract value 36.81$ 184,050.00$
Gain/(Loss) per contract 885.00$
Initial price per ounce 36.9870$
Ounces per contract 5,000
Number of contracts sold 5
Ending price per ounce 37.05$
Ending price per ounce 36.81$
Chapter 23
Question 3
Input Area:
Output Area:
Final contract value: 1.29$
Final contract value: 1.67$
Strike price 1.40$
Initial price per pound 0.1980$
Futures price at expiration 1.29$
Futures price at expiration 1.67$
Pounds per contract 15,000
Chapter 23
Question 4
Input Area:
Output Area:
futures price of $110 per barrel. The put holder will exercise the option if the price
falls below $110 The payoffs per barrel are:
Oil futures price: 105.00$ 107.00$ 110.00$ 113.00$ 115.00$
Value of call option position: –$ –$ –$ 3.00$ 5.00$
Value of put option position: (5.00)$ (3.00)$ –$ –$ –$
Exercise price per barrel 110$
# barrels bought 50,000
Oil prices: 105$
Chapter 23
Question 5
Input Area:
Output Area:
Final contract value: 1.43$
Payoff per contract 1,050.00$
Final contract value: 1.57$
Payoff per contract –$
Strike price 1.50$
Initial price per pound 0.0265$
Futures price at expiration 1.43$
Futures price at expiration 1.57$
Pounds per contract 15,000
Chapter 23
Question 6
Input Area:
Output Area:
Cost of building 450,000,000$
Probability of loss 1.50%
Chapter 23
Question 7
Input Area:
Output Area:
prices so you would buy: 26
December corn futures contracts. By
price of 6.0025$
per bushel of corn, or 780,325$
Final contract value 757,900$
While the price of corn your firm needs has
less expensive since March, your profit from
Bushels bought 130,000
Bushels per contract 5,000
Contract price per bushel 6.0025$
Ending price per bushel 5.8300$
Chapter 23
Question 8
Output Area:
One possible combination is .5% for ABC and .5% for XYZ:
Chapter 23
Question 9
Output Area:
The financial engineer can replicate the payoffs of owning a put option by selling a forward contract and buying a call. For
example, suppose the forward contract has a settle price of $50 and the exercise price of a call is also
Coal futures price: 40$ 45$ 50$ 55$ 60$
Value of call option position: –$ –$ –$ 5$ 10$
Value of forward position: 10$ 5$ –$ (5)$ (10)$
Total value: 10$ 5$ –$ –$ –$
Value of put position: 10$ 5$ –$ –$ –$
The payoffs for the combined position are exactly the same as those of owning a put. This means that, in general, the relationship
between puts, calls, and forwards must be such that the cost of the two strategies will be the same, or an arbitrage opportunity
exists. In general, given any two of the instruments, the third can be synthesized.
Chapter 23
Question 10
Input Area:
Output Area:
Cost of building 380,000,000$