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##### interest rates and shares

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Question

1) Joe buys a share of stock at S0, buy a 6-month put option for \$P on the same stock with a strike;price X = \$50, and write a 6-month call option for \$C with a strike price X = \$50. Joe;spends a total of \$48 to establish the entire portfolio. Assume that the stock does not pay;any dividend during the 6-month period. What is the risk-free interest rate that makes the;put-call parity hold?;2)You have \$1,000 to invest for six months. You can buy stocks of Peach, Inc. The stock;price is \$100 per share. To protect you from losing too much of your investment, you also;purchase put options each for \$1.00 with a strike price of \$90. To fund this put, you also;write and sell call options on the stocks each for \$1.00 with a strike price of \$105. What;is the maximum profit and loss for your position? Draw the profit and loss diagram for;your strategy as a function of the stock price at expiration (assume that stock investment;put and call options have the same expiration date).;Additional Requirements;Min Pages: 1;Level of Detail: Show all work

Paper#17937 | Written in 18-Jul-2015

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