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(1 point) Suppose that you buy 4 put options with strike price $57.5 at $1.5 each, and sell 2 call options with strike price
(1 point) Suppose that you buy 4 put options with strike price $57.5 at $1.5 each, and sell 2 call options with strike price $38.5 at $3.5 each. The maturity date T is 5 years, the continuously compounded interest rate r is 4%. a) What is the present value of the total profit if stock price at maturity is $43? Answer = dollars. b) What is the present value of the total profit if the stock price at maturity is $62.5? Answer = dollars. c) What is the present value of the total profit if the stock price at maturity is $37.5? Answer = dollars.
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To calculate the present value of the total profit we need to determine the profit from each option and then discount those profits to present value using the continuously compounded interest rate a S...Get Instant Access to Expert-Tailored Solutions
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