### Question 1 A trader enters into a one-year “short” forward contract to sell an asset for $60 when the spot price is $58. The spot price in one year proves to be $63. What is the trader’s gain or loss?

Assessment Activity 5 Short Scenarios Derivatives

**Question 1**

A trader enters into a one-year “short” forward contract to sell an asset for $60 when the spot price is $58. The spot price in one year proves to be $63. What is the trader’s gain or loss?

**Question 2**

A trader buys one (1) European call option contract (one contract consists of 100 shares). The strike price is $20 and the time to maturity is one year. The premium is $2 per share. The price of the underlying asset proves to be $25 in one year. What is the trader’s gain or loss?

**Question 3**

A trader sells one (1) European put option contract (one contract consists of 100 shares). The strike price is $50 and the time to maturity is six months. The premium received for each share is $4. The price of the underlying asset is $41 in six months. What is the trader’s gain or loss?

**Question 4**

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?