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Unformatted text preview: The Executive's CoUared Portfolio Payoff (i.e. portfolio value for a given ending stock price) Payoff 0 1 --------------- Stock Price Yes, I own stock -but not really. Our executive collecls the current stock price, So, today in cash - jusllike '2.\ \"''O~ the stock, The value of the 70rtfolio of stock, I, put, and bond is exactly ;t.rQ today, and wiD be exactly 7..."!:: to DO matter what appens in the future. This is a perfectly position. He or she is no longer exposed tbe ups and downs of the company's stock. It's as though they don't even own the stock anymore. However, the executive appears to still be exposed to the stock's moves, and also retains voting rights. Wider Collars Payoff Stock Price Sbarebolder is only exposed to prtee risk wilhiB. Darrow raDge of stock prkes r"-..}- _ _ 01-----""7<----- The Executive's Portfolio A: Sell stock outright B: Collar the portfolio Current S S Portfolio: Plus:-s- (c.- r ~~.rt:) Total Value: Cash Generated $So ts C l Today: Wider Collars...
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This note was uploaded on 09/07/2011 for the course FINANCE 320 taught by Professor Sapp during the Fall '10 term at Iowa State.
- Fall '10