Financial Economics class.

Reference - Investments by Bodie, Kane and Marcus, 10th edition, but the use of the 9th or 11th edition.

Exercise 5. Consider one stock and a risk free bond that gets rate 1". Examine the following payoff graph. ' Payom How many / much of the following do you need to buy for your portfolio to have the payoff graphed above? ___ Shares of Stock ___ Cash (risk free bond) ___ Call options with K = 1 ___ Call options with K : 2 For example if you need four shares of stock and twenty dollars of cash invested in risk free rate write 4, 20, O, O, in the lines above. Also, note that it is the amount of cash you invest initially that you should write on that line, and amounts may be negative. Draw a graph of the payoffs from each of the four parts of your portfolio listed above