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Problem 28-06 The price of a stock is $25. A put option to sell that stock at $26 is currently selling for $4. You buy

Problem 28-06

The price of a stock is $25. A put option to sell that stock at $26 is currently selling for $4. You buy the stock and the put. Complete the following table and answer the questions. Round your answers to the nearest dollar. Use a minus sign to enter negative values, if any. If the answer is zero, enter "0".

Price of the stock Profit on stock Profit on put Net profit
$18 $ $ $
22 $ $ $
26 $ $ $
30 $ $ $
34 $ $ $
42 $ $ $
  1. What is the maximum possible profit on the position?

    The maximum possible profit is a) unlimited b) 6 c)15 d)17

  2. What is the maximum possible loss on the position? Enter your answer as a positive value.

    $ ___ ?

  3. What is the range of stock prices that generates a profit?

    The position generates a profit as long as the price of the stock exceeds $ ____ ?

  4. What advantage does this position offer? Enter your answer as a positive value. Round your answer to the nearest dollar.

    The investor limits the a)net profit b) net loss to a) not more than b) not less than $ ____ ?

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