portfolio at initiation (That is, determine the initial cash flows to the investment strategy).

Assume that the annual standard deviation of returns for the stock is 20%, the risk free rate is 5%,

maturity is exactly one year from now. The stock price is currently $35.

James Weston MGMT 543: FINANCE Student ID________________Mailbox________________Pledge__________________ Student ID________________Mailbox________________Pledge__________________ MGMT 543: FINANCE Take home quiz (Lecture 22) Difficulty level: Moderate You may work in 2-person team Design a portfolio of put and/or call options and/or stocks and/or bonds that has the following payoff diagram at maturity (exactly one-year from now): Payoff $20 $20 $40 Stock Price Specify exactly what instruments you will buy or sell or write and find the total cost of the portfolio at initiation (That is, determine the initial cash flows to the investment strategy). Assume that the annual standard deviation of returns for the stock is 20%, the risk free rate is 5%, maturity is exactly one year from now. The stock price is currently $35. 1