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Question 1 (Chapter 4) Telco installs telecommunications equipment and uses copper wire as an input. For planning purposes, Telco assigns a fixed revenue of $6.20
Question 1 (Chapter 4) Telco installs telecommunications equipment and uses copper wire as an input. For planning purposes, Telco assigns a fixed revenue of $6.20 for each unit of wire it uses. The effective annual interest rate is 6.5%. The table below shows 1-year option prices for copper: Strike Call Put 0.9500 0.0649 $0.0178 0.9750 0.0500 0.0265 1.0000 0.0376 0.0376 1.0250 0.0274 0.0509 1.0340 0.0243 0.0563 1.0500 0.0194 0.0665 Compute estimated profit in 1 year if Telco sells collars with the following strikes: (a) $0.95 for the put and $1.00 for the call. (b) $0.975 for the put and $1.025 for the call. (c) $0.95 for the put and $0.95 for the call
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