1.1.5 Payoff and Profit Flashcards
1
Q
Payoff
A
The amount of money that a party would have if they cashed out completely and does not consider cash flows from any other date
2
Q
Profit
A
The accumulated value of cash flows at a risk-free rate
3
Q
Profit on long position
A
payoff - AV(premium) at risk-free rate
4
Q
Profit on short position
A
payoff + AV(premium) at risk-free rate
5
Q
Payoff on long position on stock @T
A
S(T)
6
Q
Profit on long position on stock @T
A
S(T) - S(0)e^(rT)
7
Q
Payoff on short position on stock @T
A
-S(T)
8
Q
Profit on short position on stock @T
A
-S(T) + S(0)e(rT)
9
Q
Payoff for long on non-dividend paying bond @T
A
maturity value (V)
10
Q
Profit for long on non-dividend paying bond @T
A
0
11
Q
Payoff for short on non-dividend paying bond @T
A
-V
12
Q
Profit for short on non-dividend paying bond @T
A
0
