w E R 2 8 6-7 The stock's range of payoffs in six months is $18 - $13 = $5. At expiration, the option will be worth $18 - $14 = S4 if the stock price is $18, and zero if the stock price $13. The range of payoffs for the stock option is $4 -0 = $5. Equalize the range to find the number of shares of stock: Option range / Stock range - $4/55 -0.8. With 0.8 shares, the stock's payoff will be either 0.8(918) - $14.40 or 0.8($13) $10.40. The portfolio's payoff will be $14.4 - $4 = $10.40, or $10.40 -0 = $10.40. The present value of $10.40 at the daily compounded risk-free rate is: PV = $10.40/(1+ = $10.093. The option price is the current value of the stock in the portfolio minus the PV of the A (0.06/365)) 352 payoff V=0.8($15) - $10.093 - $1.907 $1.91. w E R 2 8 6-7 The stock's range of payoffs in six months is $18 - $13 = $5. At expiration, the option will be worth $18 - $14 = S4 if the stock price is $18, and zero if the stock price $13. The range of payoffs for the stock option is $4 -0 = $5. Equalize the range to find the number of shares of stock: Option range / Stock range - $4/55 -0.8. With 0.8 shares, the stock's payoff will be either 0.8(918) - $14.40 or 0.8($13) $10.40. The portfolio's payoff will be $14.4 - $4 = $10.40, or $10.40 -0 = $10.40. The present value of $10.40 at the daily compounded risk-free rate is: PV = $10.40/(1+ = $10.093. The option price is the current value of the stock in the portfolio minus the PV of the A (0.06/365)) 352 payoff V=0.8($15) - $10.093 - $1.907 $1.91