Question
Question 12 Use the following to answer the next three questions. Smith Inc. stock currently trades for $100. Nine-month European put options on the stock
Question 12
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Use the following to answer the next three questions.
Smith Inc. stock currently trades for $100. Nine-month European put options on the stock carry a strike price and premium of $95 and $.50, respectively. The annual risk free rate is 2%. You want to create a portfolio that mirrors the payoff of writing a 9-month European call on Smith stock with an exercise price of $95. Which of the following steps must you do in order to achieve this payoff?
Sell one put option and receive $50.
Purchase 100 shares and pay $10,000.
Short the present value of exercise price and receive $9358.56.
None of the above.
6.25 points
Question 13
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What is the upfront cash inflow or outflow associated with the portfolio you need to establish a short call position on the stock?
an outflow of $19,408.56
an inflow of $19,408.56
an outflow of $691.44
an inflow of $691.44
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