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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

  1. 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

  1. 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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