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Alvaro creates a covered call. A covered call consists of one long share of stock and one short call option on the stock. The spot
- Alvaro creates a covered call. A covered call consists of one long share of stock and one short call option on the stock. The spot price of PND stock is 100. The call option he will use has a strike price of 105 and one year to expiration.
The price of the call option is 9.68 . The continuously compounded risk-free rate is 4%.
- What is Alvaros profit at the end of one year if the price of PND at that time is 102?
- What is the breakeven stock price for the portfolio?
- What is the minimum profit of the portfolio?
- What is the maximum profit of the portfolio?
- What ending stock price would result in a profit of 6.00?
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Financial Economics
Authors: Zvi Bodie, Robert C Merton, David Cleeton
2nd Edition
0558785751, 9780558785758
