Day 0, Ksh 30; Day 1, Ksh 28; Day 2, Ksh 34; Day 3, Ksh 38; Day 4, Ksh 31;

Day 5, Ksh 23; Day 6, Ksh 34.

Jesse Margin Account (LONG)

Share price DR CR Bal 16.9

0 30 9.9 4
1 28 2 7.9
2 34 6 13.9
3 38 4 17.9 Margin call of Ksh 8
4 31 7 10.9
5 23 8 7 9.9 Margin call of ksh 7
6 34 11 20.9

Margin Account 33% of futures price = 0.33*30 9.9

Mantainance margin 50%0f 9.9 4.95

Call option
Strike price (X) 30
Premium 5
Expiration date 6 days
Calculate the payoffs for the LONG and SHORT if the price (S T) of the underlying is either 42 or 22

(i) when the price is Ksh 42 (ii) When the price (ST) is 22
WENDY (LONG) Marcia (SHORT) WENDY (LONG)
CT = Max (0, ST-X) ,-CT = -Max (0, ST-X) CT = Max (0, ST-X)
,=Max(0, 42-30) .=-max(0, 42-30) ,=Max(0, 22-30)
,=Max(0,12) ,=-max(0, 12) ,=Max(0,-8)
,-CT =-max(0,12)
Pay off CT= 12 CT = -max(0,-12) Pay-off , CT = 0
CT = -12
Profits P = Max (0, ST-X) - Premium Profits Profits
,P = 12-5 P = CT+Premium Profits = Pay-off - Premium
P=7 P= -12+5 P=0-5
P= -7 P = -5
 Kinyanjui Margin Account (SHORT)
Share
price DR CR Bal
0 30 9.9
1 28 2 11.9
2 34 6 5.9
in call of Ksh 8 3 38 4 8 9.9
4 31 7 16.9
call of ksh 7 5 23 8 24.9
6 34 11 13.9

17.9
4

the price (ST) is 22

Marcia (SHORT)
,-CT = -Max (0, ST-X)
.=-max(0, 22-30)
,=-max(0, -8)
,-CT =-max(0,-8)
CT = -max(0,8)
CT = 0
Profits
Pay-off - Premium Profits = CT + P
,=0+5
P=5