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Question 8 is worth 2 marks Ms. Taylor had taken a short position in 1,000 shares of the common stock of Toronto Packaging Ltd. at
Question 8 is worth 2 marks Ms. Taylor had taken a short position in 1,000 shares of the common stock of Toronto Packaging Ltd. at the price of S40 per share in the past. Today the price per share is $30 which provides her gains in her short position. She is concerned that the price of the stock may go higher in the future, which will adversely affect her capital gains in the short position. Suppose she buys today 10 calls on the common stock of Toronto Packaging Ltd. and each call is American and has the premium of $1.2 per share, the exercise price of $37 per share, size of 100 share and option period of six months. 8. Suppose after three months today, the spot price per share of the stock, denoted by St happens to be: ( i) St=$25 (ii) St= $35 (iii) St=$45 (iv) St $55 Ignore the time value of money in your calculations and find profit(loss) from the total portfolio position of Ms. Taylor in the stock at each of four levels of S
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