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Unformatted text preview: If you want full credit, you must show work and/or formulas. Spot Price Payoff Future Value of Cost Profit 800 900 1000 1100 1200 3. Which of the following are true? Circle each true statement. a. (2 points) The party that sells a put will have the same profits as a party that buys a call. b. (2 points) There are four uses of Derivatives. One of them is Risk Management or Hedging. c. (2 points) A tornado is a nondiversifiable risk. d. (4 points) The cost of a forward is equal to the payoff on a call if the spot price at expiration is less than the strike price. 4. Lauren sell a stock short at a price of 100. One year later she closes out her position by purchasing the stock. The annual effective risk free interest rate during the last year was 6%. Determine the maximum and minimum profit that Lauren can realize on this transaction. Assume there are no transactions costs....
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 Spring '08
 Staff
 Math, Forward contract, Transaction cost, annual effective risk, Guo International

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