Answer questions 1 through 6 about insuring a portfolio identical to the S&P 500 worth $12,500,000 with a three-month horizon. The risk-free rate is 7 percent. Three-month T-bills are available at a price of $98.64 per $100 face value. The S&P 500 is at 385. Puts with an exercise price of 390 are available at a price of 13. Calls with an exercise price of 390 are available at a price of 13.125. Round off your answers to the nearest integer.
-If the S&P 500 ends up at 401,determine the upside capture.
A)96.7 percent
B)96 percent
C)99.3 percent
D)94 percent
E)100 percent

Question

Quizplus · Accepted Answer

To calculate the upside capture when the S&P 500 ends up at 401, we need to consider the initial investment, the cost of the put option, and the final value of the portfolio. The initial value of the portfolio is $12,500,000. The cost of the put option per unit of the S&P 500 is 13, so for a portfolio mimicking the S&P 500, the total cost of the put options is (13/385) * $12,500,000. The final value of the portfolio when the S&P 500 is at 401 is ($12,500,000 / 385) * 401. The upside capture is calculated as (Final Value - Initial Value - Cost of Put Options) / (Final Value - Initial Value) * 100%. Plugging in the numbers and rounding off to the nearest integer gives us approximately 96.7 percent.

Answer Questions 1 Through 6 About Insuring a Portfolio Identical