Finance And Statistics Applications

Query 1: According to the regression output, ROE's 95% confidence interval is [-3.428, 40.431]. Therefore, the 5%-tile of the ROE should be -3.428 and the 95%-tile of ROE should be +40.431. However, I found that the minimum ROE is +0.50. Something may be wrong with the code. Correct the code and show how you went about it?" Code import wooldridge as woo import numpy as np import statsmodels.formula.api as smf ceosal1 = woo.dataWoo('ceosal1') reg = smf.ols(formula='salary ~ roe', data=ceosal1) results = reg.fit() print(f'results.summary(): \n{results.summary()}\n') Query 2 (Show workings) Problem 1: Betty and Bob buy 100 shares of XYZ stock @$62 and buy 1 October 60 Put @$6 and sell 2 October 65 Calls @$5. If XYZ is $57 at October expiration, then find their profit and loss. Their profit and loss is a. Profit b. Loss (circle one) of ___________ “per share quoted basis”. The “total dollars” profit and loss is ___________. In problems 2 and 3 the stock price is $59 per share and interest rates are 16% per annum continuously compounded and there are 9 months to expiration. The following table of prices for Calls and Puts exists: Strike Price Call Put 55 12 2 60 9 3.5 65 7 P Problem 2: Algebraically find the price and the value of the 60 conversion. Find the price of synthetic stock using the 60 strike. Your final answer should be correct to 2 places after the decimal point. The price of the 60 conversion is _____________per share quoted. The value of the 60 conversion is _____________ per share quoted. The price of synthetic stock (using a strike of 60) is_________ per share. Problem 3: In a rational world algebraically find what the price of P, the 65 Put should be. Your final answer should be correct to 2 places after the decimal point. The price of P should be ________________per share quoted. Problem 4: Which one of the following statements is true? Circle the appropriate letter. A. The value of the Box depends on the price of the stock. B. One can buy stock below the market price by selling a call and being assigned. C. The Collar or Hedge Wrap involves selling calls and buying puts. D. The Covered Write of long stock involves buying out-of-the-money calls. E. Buying a put to protect long stock results in a cash inflow. Problem 5: Which one of the following statements is false? Circle the appropriate letter. A. Using options allows for greater leverage than just a naked stock position. B. describes a straddle. C. Buying puts hedges a long stock position. D. To repair stock that has fallen in price the Stock Repair Strategy involves buying calls of greater strike and selling calls of lesser strike price. E. The value of a Conversion depends on the risk-free rate of return. In Problems 6-9 be sure to indicate profit or loss. Problem 6: (Protective Put) Betty and Bob buy 100 shares of XYZ @ $50. It rises in price and to protect their profit they buy one Put with a strike price of $55 for $3 per share quoted price. Find the P&L, Y, at expiration if the stock price is a. $40 ___________ (per share quoted) b. $55 _____________ (per share quoted) c. $70 _____________ (per share quoted) Problem 7: (Covered Write) Bertha and Bill buy 100 shares of XYZ @ $50. It rises in price and to protect their profit and take in income they hedge their position by selling 1 Call with a strike of $60 for $6 per share quoted price. Find the P&L, Y, at expiration if the stock price is a. $40 _____________ (per share quoted) b. $60 ________________ (per share quoted) c. $75 ________________ (per share quoted) Problem 8: (Collar or Hedge Wrap) Boris and Bela 100 shares of XYZ @$50. It rises in price and to protect their profit and take in income they hedge their position by buying 1 Put with strike of 55 for $3 per share quoted price and sell 1 Call with a strike $65 for $4 per share quoted price. Find the P&L, Y, at expiration if the stock price is a. $40 ___________ (per share quoted price) b. $60 ____________ (per share quoted price) c. $75 ____________ (per share quoted price) Problem 9: (Stock Repair strategy) Beulah and Biff buy 100 shares of XYZ @ $50. It declines in price to $40 per share. They have hopes of a modest recovery and want to break-even on the trade. They buy 1 Call with a strike of $40 for $8 per share quoted price and sell 2 Calls with a strike of $45 for $4 per share quoted price. Find the P&L, Y, at expiration if the stock price is a. $40 __________ (per share quoted price) b. $45 ___________ (per share quoted price) c. $60 ___________ (per share quoted price) Problem 10: Indicate the one letter that best describes the picture. 1. 2. 3. ______ ____________ _______ 4. 5. a. W = X b. W = C + P c. W = - C d. W = - C – P e W = C f. W = P g. W = X + P – C h. W = - P Problem 11: An estate worth $3,500,000 and earning 24% per annum compounded monthly makes equal payments of $75,000 at the end of each month to Betty and Bob. a. Algebraically determine how many payments they will receive. _________ b. Algebraically determine the amount of the last payment that will settle the estate. _______________ Problem 12: Betty, Bob, and Bertha invest for a term of 30 months. Betty achieves a 16% per annum simple rate of return. Bob buys an IOU and achieves a 12% per annum simple discount rate. Bertha buys a painting for $704.846 and sells it for $1000., 30 months later. Algebraically determine who did best, who did next, and who did worst. Best______________ Middle __________________ Worst _____________ 6060 WCP =+