INVESTMENTS-CONNECT PLUS ACCESS
INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
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Chapter 20, Problem 28PS
Summary Introduction

To create: A Portfolio which includes both calls and put options at a stock price of $53.

Introduction:

Volatility: Volatility can be defined as debt or liability which changes instantly and is unpredictable. In financial terminology, volatility is supposed to be the range or degree of trading price series variation over a said period when measured by the standard deviation of return in logarithm. Normally, the measure of time series of old market prices is measured in historic volatility.

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A stock has a price of $73, which can later be $77 or $69 with equal probabilities. The options with exercise price $77 are valued at $1.53 for the call and $1.73 for the put. a. Calculate the gains/losses/returns for the stock. b. Calculate the gain/losses/returns for a covered call and protective put portfolio.
A stock has a price of $73, which can later be $77 or $69 with equal probabilities. The options with exercise price $77 are valued at $1.53 for the call and $1.73 for the put. Calculate the gains/losses/returns for the stock. Calculate the gain/losses/returns for a covered call and protective put portfolio.
If you must choose only two stocks to your investment portfolio, what would be your choice?
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