Homework answers / question archive / 1)Explain why what the banks did during the Libor scandal was unethical?  2)Consider the following stocks Stock Initial Price (t-0) Final Price (t-1) Number of shares (in millions) A B 20 80 15 90 12 2 1- Calculate the initial price of a price-weighted index that comprises both stocks A and B

1)Explain why what the banks did during the Libor scandal was unethical?  2)Consider the following stocks Stock Initial Price (t-0) Final Price (t-1) Number of shares (in millions) A B 20 80 15 90 12 2 1- Calculate the initial price of a price-weighted index that comprises both stocks A and B

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1)Explain why what the banks did during the Libor scandal was unethical? 

2)Consider the following stocks Stock Initial Price (t-0) Final Price (t-1) Number of shares (in millions) A B 20 80 15 90 12 2 1- Calculate the initial price of a price-weighted index that comprises both stocks A and B. 2- Calculate the final price of the same price-weighted index that comprises both stocks A and B. 3. Find the percentage change in the price-weighted average of the two stocks. 4- Calculate the final price of a market value weighted index that comprises A and B (assume that the initial price of the index is 100). Question 1 of 13 5- What is the percentage change of the value-weighted index? % Assume now that at t-0, stock B undergoes a 2 for 1 split (see new table below): Stock Initial Price (t-0) Final Price (t-1) Number of shares (in millions) A 20 40 15 45 12 4 B 6- What is the new divisor for the price-weighted index?
Assume now that at t=0, stock B undergoes a 2 for 1 split (see new table below): Stock Initial Price (t-0) Final Price (t-1) Number of shares in millions) ? 20 15 45 12 4 B 40 6- What is the new divisor for the price weighted index? n 1 of 13 7- Calculate the percentage change in the adjusted price-weighted index after the stock split. % 7. Calculate the percentage change in the value-weighted index after the stock split.

3)The annual risk free interest rate is 5.0625%. All stocks mentioned do not pay a dividend. All options mentioned are European style. The current spot price of Southwest Airlines (LUV) is 60.00. The forward price for a 6 month forward contract on Southwest Airlines is 61.50. You have the following premiums for European style calls on Southwest Airlines (LUV) which expire in 6 months: Strike Call Premium Put Premium 57 6.20 1.81 60 3.80 2.34 63 2.65 4.11

Create a payoff-profit table for Long Butterfly on LUV stock using call options. For the table, use spot prices in 6 months from 55 to 65 in increments of 1.

b. What is the maximum risk of this position?

c. What is the maximum reward of this position?

d. What is the up side breakeven spot price?

e. What is the down side breakeven spot price?

f. How would the payoff-profit table change if you used put options instead?

g. What would the cost of a Short Butterfly on LUV stock using call options be?

h. What would the cost of a Short Butterfly on LUV stock using put options be?