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Type or paste question here 3. In July, the SPDR S&P 500 ETF (SPY) is trading at $168.93/share. An investor purchases 500 shares at this
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3. In July, the SPDR S&P 500 ETF (SPY) is trading at $168.93/share. An investor purchases 500 shares at this price. SPY 162 puts with September expiration are trading for $3.15/share. The investor anticipates a liquidity need later this year. Specifically, the investor will require $75,000 in September as down payment on a new house. Consequently, the investor purchases 5 SPY 162 put contracts, with each contract covering 100 shares. Assume the investor will liquidate the stock purchase when the put contracts expire in September, in order to finance the home purchase. a. What is the initial value of the 500 shares purchased at $168.93/share? b. Calculate the Dollar value of the stock investment (500 shares of SPY) if the SPY price is $140, $160, or $200 in September. C. In words, explain the risk that the investor would face if they held SPY without the put contracts. d. What is the initial cost of the 5 put contracts? e. Calculate the Dollar profit/loss on the put contracts (5 SPY 162 put contracts purchased at $3.15/share) if the SPY price is $140, $160, and $200 in September. f. Consider the shares of SPY and the put contracts. What it the combined profit or loss if shares of SPY are trading at $140 in September? g. Explain how/if the put contracts hedge the risk discussed in 3.c. h. In addition to the SPY 162 put contracts (currently trading at $3.15/share), SPY 158 put contracts are currently trading at $2.42/share. Explain the tradeoffs between hedging the initial stock purchase with the 162 puts versus the 158 putsStep by Step Solution
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