A stock currently trades at $100. In one month its price will either be $125, $100, or $75. 1 sell you a call option on this stock, struck at $95, for $11. | hedge my exposure by purchasing A shares, borrowing 1004 - 11 in order to fund the purchase. The simple rate of interest is 12%. (@) What will my profit/loss be in one month? {b) Is it possible for me to completely hedge my exposure? Explain.
A stock currently trades at $100. In one month its price will either be $125, $100, or $75. 1 sell you a call option on this stock, struck at $95, for $11. | hedge my exposure by purchasing A shares, borrowing 1004 - 11 in order to fund the purchase. The simple rate of interest is 12%. (@) What will my profit/loss be in one month? {b) Is it possible for me to completely hedge my exposure? Explain.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A stock currently trades at $100. In one month its price will either be $125, $100, or $75. 1 sell you a call option on this stock, struck at $95, for $11. | hedge my exposure by purchasing A shares, borrowing 1004 - 11 in order to fund the purchase. The simple rate of interest is 12%. (@) What will my profit/loss be in one month? {b) Is it possible for me to completely hedge my exposure? Explain.
Transcribed Image Text:A stock currently trades at $100. In one month its price will either be $125, S100, or $75. I sell you a call option on this stock, struck at $95, for $11.I hedge my
exposure by purchasing A shares, borrowing 100A - 11 in order to fund the purchase. The simple rate of interest is 12%.
(a) What will my profit/loss be in one month?
(b) Is it possible for me to completely hedge my exposure? Explain.
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