INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
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Question
Chapter 20, Problem 11PS
a.
Summary Introduction
To compute: The value of portfolio in January if stock price ends up at $30 and compare the value if you hold the shares.
Introduction:
Value of the portfolio:It is also called as the portfolio value. The
b.
Summary Introduction
To compute: The value of portfolio in January if stock price ends up at $40
Introduction:
Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.
c.
Summary Introduction
To compute: The value of portfolio in January if stock price ends up at $50
Introduction:
Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.
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Students have asked these similar questions
Imagine that you are holding 5,800 shares of stock, currently selling at $65 per share. You are ready to sell the shares but would
prefer to put off the sale until next year due to tax reasons. If you continue to hold the shares until January, however, you face the risk
that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of
additional funds. January call options with a strike price of $70 are selling at $5, and January puts with a strike price of $60 are selling
at $6. What will be the value of your portfolio in January (net of the proceeds from the options) if the stock price ends up at $51, $65,
$71? What will the value of your portfolio be if you simply continued to hold the shares?
> Answer is complete but not entirely correct.
Stock Price
$65
Portfolio Value
If collar is used
If you continued to hold the shares
$
$
$51
5 × $
$
353,800
5 × $
290,000 $
$71
(6) X
226,200 x
Imagine that you are holding 5,000 shares of stock, currently selling at $40 per share. You are ready to sell the shares but would prefer to put off the sale until next year for tax reasons. If you continue to hold the shares until January, however, you face the risk that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of additional funds. January call options with a strike of $45 are selling at $2, and January puts with a strike price of $35 are selling at $3. What will be the value of your portfolio in January (net of the proceeds from the options) if the stock price ends up at: (a) $30, (b) $40, or (c) $50? Compare these proceeds to what you would realize if you simply continued to hold the shares.
16. Imagine that you are holding 6,400 shares of stock, currently selling at $40 per share. You
are ready to sell the shares but would prefer to put off the sale until next year due to tax reasons.
If you continue to hold the shares until January, however, you face the risk that the stock will
drop in value before year-end. You decide to use a collar to limit downside risk without laying
out a good deal of additional funds. January call options with a strike price of $45 are selling at
$6, and January puts with a strike price of $35 are selling at $8.
a. What will be the value of your portfolio on the January expiration date if the stock price
ends up at $29?
b. What will be the value of your portfolio on the January expiration date if the stock price
is $49?
Chapter 20 Solutions
INVESTMENTS(LL)W/CONNECT
Ch. 20 - Prob. 1PSCh. 20 - Prob. 2PSCh. 20 - Prob. 3PSCh. 20 - Prob. 4PSCh. 20 - Prob. 5PSCh. 20 - Prob. 6PSCh. 20 - Prob. 7PSCh. 20 - Prob. 8PSCh. 20 - Prob. 9PSCh. 20 - Prob. 10PS
Ch. 20 - Prob. 11PSCh. 20 - Prob. 12PSCh. 20 - Prob. 13PSCh. 20 - Prob. 14PSCh. 20 - Prob. 15PSCh. 20 - Prob. 16PSCh. 20 - Prob. 17PSCh. 20 - Prob. 18PSCh. 20 - Prob. 19PSCh. 20 - Prob. 20PSCh. 20 - Prob. 21PSCh. 20 - Prob. 22PSCh. 20 - Prob. 23PSCh. 20 - Prob. 24PSCh. 20 - Prob. 25PSCh. 20 - Prob. 26PSCh. 20 - Prob. 27PSCh. 20 - Prob. 28PSCh. 20 - Prob. 29PSCh. 20 - Prob. 30PSCh. 20 - Prob. 31PSCh. 20 - Prob. 1CPCh. 20 - Prob. 2CPCh. 20 - Prob. 3CPCh. 20 - Prob. 4CPCh. 20 - Prob. 5CP
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