Question
This example is part of Hedged Portfolios to minimize risk. Assume you have $7000 to invest; A stock is trading at $100.00. A call option
This example is part of "Hedged Portfolios" to minimize risk. Assume you have $7000 to invest; A stock is trading at $100.00. A call option that expires in one year with a strike price of $100.00 is trading at $8.00. T-Bills are yielding a 1-year return of 0%. Suppose you invested $3000 in Options and the remaining $4000 in T-Bills.
How much is your portfolio's 1-year return if you invest in "Options and T-Bills" and the stock price after one year is $125.00? Enter your answer in the following format: + or - 0.1234 Hint: The Answer is between 0.8115 and 1.0328
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