You hold a portfolio of an asset-or-nothing call and a cash-or-nothing put option written on a stock that does not pay dividends. The strike price of the options is the same. The payout of the cash-or- nothing option if it is exercised equals the strike price. Your portfolio is equivalent to O A plain-vanilla call option. O None of the other answers are correct. O A covered call position, i.e., a long stock + short plain vanilla call. A plain-vanilla put option. A protective put position, i.e., a long stock + long put option.
You hold a portfolio of an asset-or-nothing call and a cash-or-nothing put option written on a stock that does not pay dividends. The strike price of the options is the same. The payout of the cash-or- nothing option if it is exercised equals the strike price. Your portfolio is equivalent to O A plain-vanilla call option. O None of the other answers are correct. O A covered call position, i.e., a long stock + short plain vanilla call. A plain-vanilla put option. A protective put position, i.e., a long stock + long put option.
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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Transcribed Image Text:You hold a portfolio of an asset-or-nothing call and a cash-or-nothing put option written on a stock
that does not pay dividends. The strike price of the options is the same. The payout of the cash-or-
nothing option if it is exercised equals the strike price. Your portfolio is equivalent to
O A plain-vanilla call option.
O None of the other answers are correct.
O A covered call position, i.e., a long stock + short plain vanilla call.
O A plain-vanilla put option.
O A protective put position, i.e., a long stock + long put option.
Transcribed Image Text:Assume there are no brokerage commissions, bid-ask spreads, or other transactions costs. The risk-
free borrowing and lending rates are equal. If you lend $1 for one month you will get back $1.02 at
the end of the month. The current spot price of gold is $1,000 per ounce. The forward price for
delivery of an ounce of gold in one months' time is $1,015. Your belief is that gold is underpriced and
that gold prices will rise over the coming month. The size of the arbitrage profit per ounce of gold
that you can achieve in one months' time is:
O $5.00 by undertaking a reverse cash-and-carry strategy.
O $15.00 by undertaking a cash-and-carry strategy.
O $5.00 by undertaking a cash and carry strategy.
O Of unknown size, but you will be profit by buying gold.
O$15.00 by undertaking a reverse cash-and-carry strategy
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