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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?
