16. Suppose that you buy an outperformance call option with the following terms: Portfolio X consists
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16. Suppose that you buy an outperformance call option with the following terms:
• Portfolio X consists of bonds with a market value of $5 million.
• Portfolio Y consists of stocks with a market value of $5 million.
• The expiration date is nine months from now and is a European option.
• The strike price is equal to Market value of Portfolio X − Market value of Portfolio Y.
What is the payoff of this option if at the expiration date, the market value of Portfolio X is $10 million and the market value of Portfolio Y is $12 million?
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Related Book For 
Foundations Of Global Financial Markets And Institutions
ISBN: 9780262039543
5th Edition
Authors: Frank J. Fabozzi, Frank J. Jones, Francesco A. Fabozzi, Steven V. Mann
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