Question
5. The current price of a non-dividend paying stock is 40 per share. One-year options are available on the stock. The interest rate is 8%.
5. The current price of a non-dividend paying stock is 40 per share. One-year options are available on the stock. The interest rate is 8%. The price of a call option on the stock with a strike price of 45 is equal to 6.46.The price of a call option on the stock with a strike price of 50 is equal to 4.12.A portfolio consists of:2 shares of stock (long)3 long call options with K = 454 long put options with K = 455 short call options with K = 50
a. Determine the breakeven point(s) of the portfolio at the end of one year (6 points).
b. Determine the minimum profit and maximum profit of the portfolio at the end of one year (6 points).
c. Determine the profit of the portfolio at the end of one year if the stock price at that time is 51. (3 points)
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