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Suppose the premium on a 9 1 - day 3 5 - strike XYZ Company stock call is $ 6 . 1 3 and the

Suppose the premium on a

91 -

day

35 -

strike XYZ Company stock call is $

6.13

and the premium on a put with the same strike price is $

0.44,

and the premium on a

91 -

day

40 -

strike XYZ stock call is $

2.78

and the premium on a put with the same strike price is $

1.99,

while the premium on a

91 -

day

45 -

strike XYZ stock call is $

0.97

and the premium on a put with the same strike price is $

5.08 .

In addition, the continuously compounded annual interest rate is

8 % .

You implement a strategy consisting of

(1)

the purchase of both a

45 -

strike XYZ call and a

35 -

strike XYZ put, and

(2)

the sale of both a

40 -

strike XYZ call and a

40 -

strike XYZ put. What is the profit or loss from this strategy, including both Part

(1)

and

(2),

at expiration

(

91

days

)

if the stock price is $

75

at that time?

(

Reminder: Identify this strategy first before computing its combined profit

/

loss

.)

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