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Consider a stock that you can purchase for $ 1 0 0 a share, a 1 1 0 , 1 - year call option can

Consider a stock that you can purchase for $

100

a share, a

110, 1 -

year call option can be sold for $

10 .

The stock pays a $

5

annual dividend. If you execute a covered call, and the stock is in the money at the expiration of the option, what is your rate of return on the position? What is your maximum downside exposure?

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