2009-Quiz 7 - Fin 3144: Investments Quiz 7 Name: KEY 1. You...

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Fin 3144: Investments Quiz 7 Name: KEY 1. You buy a share of stock, write a 1-year call option with X = $10, and buy a 1-year put option with X = $10, both on the same stock. Your net outlay to establish the entire portfolio is $9.00. The stock pays no dividends. a. What is the risk-free interest rate? b. What will be the value of your portfolio upon expiration if the stock price is $12? c. What will be the value of your portfolio upon expiration if the stock price is $15? d. Comment on the answers you obtain for (b) and (c). e. How can you synthetically construct a share of stock from a call, a put, and a bond? -----------------------------------------------------------------------------------------------------
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Key a. C+PV(X) = S+P Call + Present Value of the exercise price = Stock + Put PV(X) = S+P-C You are given that the cost of a share of stock, cost of a put, minus the cost of an option is = $9.00. PV(X) = $9.00
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This note was uploaded on 09/22/2010 for the course FIN 3055 at Virginia Tech.

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2009-Quiz 7 - Fin 3144: Investments Quiz 7 Name: KEY 1. You...

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