HW No. 3 Due in class W FEB p1 of 2

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HW No. 3 Due in class W FEB 24 p1 of 2 Study Chapters 8 and 10 in the text book and answer the following problems: Q1. 8.2; Q2. 8.12; Q3. 8.23 – Do it all per share. Also, do only the first part of the problem. I.e., ignore the last sentence of the problem. Q4. 10.10 – for both spreads, show tables of cash flows and graph the P?L profiles. Use the table of prices on the next page in order to solve Q5. – Q8 on the next page.

Q5. Consider the following strategy: p2 of 2. Q5. Consider the following strategy: [Buy the stock and sell the APR, K=30 call] Show the complete table of cash flow and the P/L at expiration. Graph the P/L of the above strategy at expiration. Q6. Consider the following strategy: [Buy the OCT, K=25 put and sell the OCT, K=30 put] a. Show the complete table of cash flow and the P/L at expiration. b. Graph the P/L of the above strategy at expiration. Q7. Consider the following strategy: [Buy the APR K=32.5 put and sell the APR, K=30 put] Q8. Consider the following strategy: [Buy the stock and buy the APR K=20 put and sell the APR, K=35 call] MMM; WED August 25 2009. S = 27.50 K C A L L S - L A S T P U T S - L A S T SEP OCT JAN APR 20 --- 8.50 .35 1.00 25 3.50 3.80 .15 .50 27.5 1.35 .55 30 1.70 2.40 2.75 4.20 32.5 .45 .75 1.30 5.25 6.00 35 .05 7.30 8.85 9.50