4. You sell one American call option contract on Xerox stock maturing in June 2022 with the strike price of $60 and simultaneously you sell one American put option contract on Xerox stock also maturing in June 2022 with strike price of $60. The call premium is $5 and the put premium is $3 per share. Your strategy will generate if Xerox's stock price experiences over time. a. profit; dramatic change b. loss; dramatic change c. profit; little change d. loss; little change c. none of the above 5. A company based in U.S. is expected to make a payment to a client in 3 months in the amount of 1,000,000 euros. To do so, it plans to acquire euros in 3 months on the spot market. Current exchange rate is $0.90 per euro and the company is seeking to hedge the risk that it pays above that rate in the future. In order to hedge the risk, the company can transact in cither European call or European put options on euro maturing in 3 months. The strike price of both options is $0.90 per euro, call premium is $0.05 per curo, while put premium is $0.04 per euro. The company decides to today. In 3 months the price of euro turns out to be $1.20 per euro. Given this outcome, the company's overall cost of acquiring euros is per euro. a. buy puts; $0.94 b. buy calls; $0.95 c. sell puts; $0.86 d. sell calls; $0.85 e. buy puts; $0.86 6. A stock price is currently $100. It is known that at the end of six months it will be either $160 or $40. The risk-free rate of interest with continuous compounding is 10% per annum. The current value of a six-month European call option on the stock with an exercise price of $90 is The risk-free portfolio's hedge ratio (delta) is a. 23.33; 0.2500 b. 35.00; 0.5833 c. 35.00; 0.5714 d. 36.14; 0.5833 e. 23.33; 0.4375