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Rachel is considering an investment in Yonan Communications, whose stock currently sells for $50. A put option on Yonan's stock, with an exercise price of
Rachel is considering an investment in Yonan Communications, whose stock currently sells for $50. A put option on Yonan's stock, with an exercise price of $45, has a market value of $2.82. Meanwhile, a call on the stock with the same exercise price and time until expiration has a market value of $9.19. The market believes that at the expiration of the options, the stock price will be $40 or $55 with equal probability. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. What is the premium associated with the put optwon? The call option? Do not round intermediate calculations. Round your answers to the nearest cent. The premium associated with the put option: \$ The premium associated with the call option: \$ b. If Yonan's stock price increases to $55, what would be the return to an investor who bought a share of the stock? If the investor bought a call option on the stock? If the investor bought a put option on the stock? Do not round intermediate calculations. Round your answers to two decimal places. c. If Yonan's stock price decreases to $40, what wopld be the return to an investor who bought a share of the stock? If the investor bought a call option on the stock? If the investor bought a put option on the stock? Do not round intermediate calculations. Round your answers to two decimal places. Investment Own stock Buy call option Buy put option Returns % % % d. If Rachel buys 0.5 share of Yonan Communications and sells one call option on the stock, has she created a riskless hedged investment? What is the total value of her portfolio under each scenario? Do not round intermediate calculations. Round your answers to the nearest cent. Rachel's investment strategy would yield a payoff of $3, if the ending stock price is $40.00. Her investment strategy has a payoff of $Q, if the ending stock price is $55.00. The strategies identical payoffs; therefore, this a riskless hedged portfolio. e. If Rachel buys 0.7 share of Yonan Communications and sells one call option on the stock, has she created a riskless hedged investment? What is the total value of her portfolio under each scenario? Do not round intermediate calculations. Round your answers to the nearest cent. Rachel's investment strategy would yield a payoff of $ Q if the ending stock price is $40.00. Her investment strategy has a payoff of $ , if the ending stock price is $55.00. The strategies identical payoffs; therefore, this a riskless hedged portfolio. \begin{tabular}{|c|c|c|} \hline A & A & B \\ \hline 1 & Options & \\ \hline 2 & & \\ \hline 3 & Current stock price & $50 \\ \hline 4 & Put option exercise price & $45 \\ \hline 5 & Put option market value & $2.82 \\ \hline 6 & Call option exercise price & $45 \\ \hline 7 & Call option market value & $9.19 \\ \hline 8 & & . \\ \hline 9 & Stock price range: & \\ \hline 10 & Low price & $40 \\ \hline 11 & High price & $55 \\ \hline 12 & & \\ \hline 13 & Situation 1 \% share purchased & 0.50 \\ \hline 14 & Situation 2: \% share purchased & 0.70 \\ \hline \end{tabular}
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