Question
Audrey is considering an investment in Morgan Communications, whose stock currently sells for $61. A put option on Morgan's stock, with an exercise price of
Audrey is considering an investment in Morgan Communications, whose stock currently sells for $61. A put option on Morgan's stock, with an exercise price of $55, has a market value of $3.24. Meanwhile, a call option on the stock with the same exercise price and time to maturity has a market value of $9.97. The market believes that at the expiration of the options the stock price will be either $70 or $50, with equal probability.
If Audrey buys 0.7 share of Morgan Communications and sells one call option on the stock, has she created a riskless hedged investment? What is the total value of her portfolio under each scenario? Round your answers to two decimal places. $50: $ $70: $ If Audrey buys 0.8 share of Morgan Communications and sells one call option on the stock, has she created a riskless hedged investment? What is the total value of her portfolio under each scenario? Round your answers to two decimal places. $50: $ $70: $
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