Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please answer all the question. Creating a riskless portfolio using call options Almost all option pricing models are based on the concept of a riskless
Please answer all the question.
Creating a riskless portfolio using call options Almost all option pricing models are based on the concept of a riskless hedge. Investors can create a riskless hedge by purchasing shares of stock and simultaneously selling a call option on the stock. Suppose Triptych Food Corp. stock is currently selling for $50.00 per share. Options exist that permit the holder to buy one share at an exercise price of $45.00. These options will expire at the end of one year. When the options expire, Triptych Food Corp.'s stock will either be selling for $65.00 or $25.00. What is the range of Triptych Food Corp.'s ending stock prices? $55.00 $40.00 $35.00 $20.00 What is the range of Triptych Food Corp.'s ending option values? $30.00 $20.00 $40.00 $15.00 To construct a riskless portfolio, an investor will need to equalize these ranges. If the investor is planning on selling one option, how many shares of stock should he or she buy to equalize these ranges? Assume that for this problem you can buy less than one share of stock. 0.50 0.55 0.40 0.65 If the investor decides to go forward with creating this riskless hedge, what will the ending total value of the portfolio be? $16.25 $12.50 $10.00 $15.00 What will the equilibrium price of the call option be if the risk-free rate is 9%? $13.53 $10.15 $14.88 $10.82Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started