You currently own $100,000 worth of Wal-Mart stock. Suppose that Wal-Mart has an expected return of 14% and a volatility of 23%. The market portfolio has an expected return of 12% and a volatility of 16%. The risk-free rate is 5%. Assuming the CAPM assumptions hold, what alternative investment has the lowest possible volatility while having the same expected

return as Wal-Mart? What is the volatility of this portfolio?

a) Graph the payoff at expiration of a short position in a put option with a strike price of $ 20.

b) You are long both a put option and a call option on Rockwood Stock with the same expiration date. the exercise price of the call options is $40 and the exercise price of the put option is $30. Graph the payoff of the combination of options at expiration

c) you are long both a call and a put on the same share of stock with the same exercise date. The exercise price of the call is $40 and the exercise price of the put it $45. Plot the value of this combination as a function of the stock price on the exercise date.