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This question was created from FF01 Fall Dec 2017.pdf




Question 20:
An institutional investor would like to sell ST shares now, but would have to pay important
taxes if the transaction is concluded this in 2017. His investment banker advises him buy
instead for every stock he owns a put option and short (sell) a call option, both with a strike of
$23.00 maturing in January 2018. What is the net cost of this strategy?
Please represent graphically the payoff function for this combination of a put and a call option
and calculate the payoff of the combined portfolio (Stock+ put - call) in January 2018.

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